The Nigerian Stock Exchange,on January 29, 2018, began the implementation of the 1 kobo rule;from an initial floor of 0.50 per share, stocks can now trade at a minimum of ₦0.01 per share. Insurance stocks have borne the brunt of the shift. Of the 21 companies currently trading below the ₦0.50 floor, 13 are insurance firms.

Here is a look at the firms trading at this level.

African Alliance Insurance

2017 may be a negative year for this insurance company if its most recent results are anything to go by. Results for the 9 months ended, September 2017 show that gross premium written dropped from N12.9 billion in 2016 to ₦5.1 billion in 2017. The company also made a loss before tax of ₦2.1 billion compared to a profit before tax of ₦1.3 billion.

The company also had negative retained earnings of ₦24.8 billion as at September 2017, thus making any hopes of dividend payment quite bleak.

Buy/Sell/Hold

Investors would be better off selling the stock as it has negative fundamentals.

Equity Assurance

Equity Assurance still has some distance to cover in its journey to profitability.  Gross premium written increased from ₦1.6 billion in 2016 to ₦2.2 billion in 2017, and an underwriting profit of ₦473 million compared to a loss of N45 million. The company, however, made a loss before tax of ₦240 million, compared to a loss before tax of ₦2.4 billion made in 2016.

Sunu Assurance of Cote D’ Ivoire, in 2015, took a majority stake in the firm and the turn-around process may take a few more years to yield fruit.

Buy/Sell/Hold

Investors who are infrequent traders with long-term outlooks could decide to hold. Much more savvy investors could decide to liquidate their holdings and re-enter at a lower price.

LASACO Insurance

Incorporated on December 20, 1979, under the Company Decree of 1968, the company, then known as Lagos State Assurance Company Limited, obtained a license as an insurer on July 7, 1980, and commenced business on August 1, 1980. It became a public limited liability company in 1991 when the company’s shares were listed on the NSE. The company secured a life insurance business license from National Insurance Commission (NAICOM) in 2007 but merged both operations in 2015.

Results for the 9 months ended, September 2017 show an increase in gross premium written (from ₦4.9 billion in 2016 to ₦5.7 billion in 2017) but a decline in profit before tax (from ₦914 million in 2016 to ₦553 million in 2017). This was largely due to a drop in foreign exchange revaluation gains which fell from ₦2.6 billion in 2016 to ₦392 million in 2017.

Buy/Sell/Hold

Investors who are infrequent traders with long-term outlooks could decide to hold. More intuitive investors could decide to liquidate their holdings and re-enter at a lower price. LASACO paid a dividend of 3 Kobo in 2016 and despite the drop in profit, could maintain the same payment.

Mutual Benefits

Mutual Benefits Assurance Plc was incorporated on April 18, 1995, under the name Mutual Benefits Assurance Company Limited. The company was converted and re-registered as a public limited liability company on May 24, 2001. It became listed on the NSE on May 28, 2002.

Gross premium written increased from ₦9.8 billion in 2016 to ₦10.5 billion in 2017. Underwriting profit, however, fell slightly from ₦4.3 billion in 2016 to ₦3.7 billion in 2017; largely due to an increase in net benefit and claims from ₦1.5 billion in 2016 to ₦3 billion in 2017. The company made a profit before tax of N1.1 billion compared to a loss before tax of ₦324 million in 2017.

Buy/Sell/Hold

Mutual Benefits, despite the return to profitability, has accumulated losses of ₦1.2 billion for the period ended, September 2017; thus foreclosing any form of dividend payment. It also has unresolved issues with Daewoo Securities limited in respect of a convertible bond in 2007.

Investors are better off selling the stock. A proposed rights issue in the works would further dilute the investors’ shareholdings.

Niger Insurance

The company was established in 1962 as an affiliate of Yorkshire Insurance Company (U.K.) and was then known as Yorkshire Insurance Company Nigeria Limited. Following the implementation of the indigenisation Act 1976, the federal ministry of finance, through NICON, wholly acquired the company and its name was changed to The Niger Insurance Company Limited. As a result of the privatisation policy of the federal government, the company’s shares were sold to the public in 1989 and its name became Niger Insurance Plc.

The Company has 2 wholly-owned subsidiaries: NIC Securities & Trust Limited and NIC Properties Limited.

For the 9 months ended, September 2017, gross premium written increased from ₦4.6 billion in 2016 to ₦7.1 billion in 2017. Underwriting profit increased from ₦1.4 billion in 2016 to ₦1.7 billion in 2017. The firm also made a profit before tax of ₦397 million compared to a loss before tax of ₦407 million in 2016.

Buy/Sell/Hold

Niger Insurance has had a fairly consistent record of profitability, and dividend payment from 2012 to 2016. Investors could decide to offload and re-enter at a lower price, or simply hold.

Prestige Insurance

Established in 1952 as a branch office of The New India Assurance Company Limited, Mumbai, the company was incorporated as a limited liability company on January 6, 1970, and licensed to write all classes of non-life insurance in Nigeria.The name was changed to Prestige Assurance Plc on September 24, 1992, in line with the indigenisation decree.

After a successful recapitalisation in 2007 and subsequent rights issue in 2015, it currently operates as a subsidiary company of The New India Assurance Company Ltd, Mumbai with 69.5% shareholding.

Results for the 9 months ended, September 2017 show that gross premium written increased from ₦1.8 billion in 2016 to ₦2.4 billion in 2017. Profit before tax also increased from ₦385 million in 2016 to ₦580 million in 2017.

Buy/Sell/Hold

Prestige had in August last year, made an application to the NSE for a “No Objection” to its proposal to reduce the company’s share capital from ₦2,685,216,000 being 5,370,432,000 ordinary shares of 50 kobo each to ₦1,908,705,000 being 3,817,410,000 ordinary shares of 50 kobo each in the issued and fully paid-up ordinary shares of the company. The share capital if reduced will be applied in writing off the capital of the company which is lost or unrepresented by available assets.

The essence of the capital reconstruction is to enable the company to wipe out its accumulated retained losses of ₦776,511,000. It stated further that the reconstruction will reposition the company on a trajectory for subsequent accumulated retained profit, create more value for its shareholders and enable the company pay dividends.

Investors could either decide to hold the stock, or sell and re-enter at a lower price, in view of the proposed reconstruction.

Royal Exchange Assurance Plc

Royal Exchange commenced operations in Nigeria in 1918, represented by Barclays Bank DCO and in 1921, converted to a full branch of its then parent company, Royal Exchange Assurance, London.The company was incorporated as a private limited liability company on December 29, 1969. It was converted to a public company on July 15, 1989, and listed on the NSE on December 3, 1990.

For the 9 months ended, September 2017, gross premium increased from ₦10.8 billion in 2016 to ₦11.3 billion in 2017. Underwriting profit fell slightly from ₦1.9 billion in 2016 to ₦1.4 billion in 2017.  Profit before tax also increased from ₦274 million in 2016 to ₦343 million in 2017.

Buy/Sell/Hold

Investors would be better off selling to re-enter at a slightly lower price. Those averse to trading could maintain their positions.

Regency Alliance

Results for the 9 months ended, September 2017 show that gross premium written increased from ₦2.8 billion in 2016 to ₦4.0 billion in 2017. Underwriting profit increased slightly from ₦1.32 billion in 2016 to ₦1.39 billion in 2017. Profit before tax fell slightly from ₦628 million in 2016 to ₦582 million in 2017.

Buy/Sell/Hold

Regency Alliance has had a solid profitability and dividend payment history in the last 5 years. Investors could decide to either hold or sell and re-enter at a lower price.

Sovereign Trust Insurance

 The company was incorporated as a limited liability company on February 26, 1980, but was re-organised and commenced business as a non-life insurance company on January 2, 1995 with an authorised share capital of ₦30 million and a fully paid-up capital of the ₦20 million; this was after the acquisition and recapitalisation of the then Grand Union Assurances Limited.

Sovereign Trust Insurance became a public limited company (Plc) on  April 7, 2004, and was listed on the NSE on November 26, 2006.

Results for the 9 months ended September 2017 show that gross premium written increased from ₦4.9 billion in 2016 to ₦7.3 billion in 2017. Underwriting profit increased from ₦1.1 billion in 2016 to ₦1.3 billion in 2017. Profit before tax also grew sharply from ₦165 million in 2016 to ₦716 million in 2017.

Despite the fantastic result, negative retained earnings of ₦846 million mean that the company will not be paying dividends anytime soon.

Buy/Sell/Hold

Investors would be better off selling their holdings, to re-enter at a lower price.

Standard Alliance Insurance

September 2017 show that gross premium written increased slightly from ₦3.8 billion in 2016 to ₦3.9 billion in 2017. Underwriting profit fell sharply from ₦2.2 billion in 2016 to ₦1.4 billion in 2017 due to an increase in net claims expenses from ₦280 million in 2016 to ₦830 million in 2017. Profit before tax also dropped sharply from ₦821 million in 2016 to ₦544 million in 2017.

The company has negative retained earnings of ₦13 billion, suggesting that dividend payment may not happen anytime soon.

A new core investor took over the company in 2015, which led to a change of its Managing Director. Standard Alliance has also merged its general and life insurance arms.

Buy/Sell/Hold

Investors would be better off selling their holdings, to re-enter at a lower price.

Unity Kapital

UnityKapital Assurance Plc (“the company”)was initially incorporated under the name of Kapital Insurance Company Limited as a private limited liability company on August 8, 1973. On March 14, 2007, it merged with two other firms and became a public limited liability company.

Gross Premium Written increased from ₦1.7 billion in 2016 to ₦2 billion in 2017. Underwriting profit increased from ₦376 million in 2016 to ₦512 million in 2017. Profit before tax also increased from ₦215 million in 2016 to ₦257 million in 2017.

Unity Bank, in August 2017, divested its stake in the insurance company and Veritas capital became the new core investor.

Buy/Sell/Hold

Investors would be better off holding the shares, except they are savvy enough to re-enter at a lower price. A new management means that the company could maintain its positive results.

UNIC Diversified Holdings

UNIC diversified holdings is a holding company for the previous, entity Unic insurance which was acquired by South African financial services firm, Liberty Mutual.

Buy/Sell/Hold

Investors would be better off holding the stock as re-engineering of the company continues.

Why the poor performance?

Insurance stocks in the country have performed poorly on the Exchange due to these reasons:

  1. Poor management practices

Many listed insurance companies have poor corporate governance structures. The lines between ownership and management tend to be blurred. Insurance companies are also notorious for submitting financial statements quite late.

This poor management translates to investor apathy, as the companies are unable to pay dividends mostly due to negative retained earnings. Poor performance has also led to stagnation in their share prices.

  1. Low penetration

Insurance services in the country have a very low level of penetration— less than 1%. Simply put, less than 5 million people in Nigeria have any form of insurance.

2. Poor underwriting capacities

Insurance companies in the country lack the capital to underwrite big-ticket transactions. This has led to the National Insurance Commission implementing a risk-based supervision system. Companies will only be allowed to underwrite risks according to the volume of capital they possess.

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