By Michael Eboh
An expert in the NigerianÂ capital market, Mr. Tunde Adeyemi has lamented the not-too-impressive financial performances of insurance companies on the Nigerian Stock Exchange (NSE) over the years, blaming it on their high number of issued shares.
Specifically, market operators had, since after the consolidation exercise in the insurance sector, expressed disdain over the results declared by insurance firms, especially in their bottom lines and their dividend payout to investors.
In the last couple of weeks, a number of insurance companies have released their year end financial statements to the investing community, posting low bottom lines and announcing disappointing dividends.
Regency Alliance Insurance Plc announced a gross premium of N1.71 billion, profit after tax of N312.7 million and a dividend of N0.02 per share. Niger Insurance Plc posted a gross premium of N5.32 billion, profit after tax of N206 million, a dividend of N0.05 and a bonus of one ordinary share for every 10 ordinary share.
Lasaco Assurance Plc announced a gross premium of N2.33 million, profit after tax of N364.93 million, no dividends and bonus declared. Sovereign Trust Insurance Plc declared a dividend of N0.03, while Staco Insurance Plc announced a dividend of N0.02 per share among others.
These insurance companies have huge share capital, running into several billions of units, a factor that has made it impossible for their share prices to rise to significant level. Also, despite their huge number of shares, the total market capitalisation of companies in the sector on the NSE stood at N431.852 billion as at 2008,Â compared with its counterpart in the financial services industry, the banking sector, with a combined market capitalisation of N5.65 trillion.
In particular, Universal Insurance Plc have an outstanding share of 16 billion, Regency Alliance Insurance Plc 6.06 billion shares, Investment and Allied Assurance Plc 28 billion shares among others.
Mr. Adeyemi, who is the Managing Director of DHTL Capital Management Limited, disclosed that the major factor militating against the growth of insurance companies was their huge number of shares.
He noted that a number of insurance companies are apprehensive about releasing their results due to their unimpressive performance and the sentiments it will generate among stakeholders in the capital market.
He called on insurance companies to take the issue of share reconstruction into serious consideration, ensuring that their shares are reduced to meaningful levels that will not pose serious challenges for them to manage, and which will not put serious burdens on their earnings.
He said, â€œInsurance companies in the Nigerian capital market, are jittery in bringing out their results to the investing community, because of the negative effect the huge number of shares will have on their earnings. This has brought the need for insurance companies to reconstruct their shares, bringing it to a manageable level. This will increase the value of the companies and help boost their earning power.â€