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Core investor take-overs loom as insurance industry recapitalizes

By Rosemary Onuoha

DESPITE protests from minority shareholders kicking against the one year time frame given to insurance companies to recapitalize, major insurance companies are taking action to beat the deadline.

•Eddie Efekoha, President CIIN

Financial Vanguard investigations reveal three major steps and directions of the recapitalisation programme being worked out by the companies.

Beside the top five companies that have crossed the new capital base threshold, the major insurers are going for core-investor acquisitions, rights issues and private placements. No information could be confirmed on public offer or merger talks as at the time of filing this report.

Foreign core-investor option is already underway in Royal Exchange Plc.

Revised proposal

As at last weekend details of the move to bring in foreign core investors indicated that the National Insurance Commission, NAICOM, has approved a 39.25 percent stake for InsurResilience Investment Fund, IIF, in Royal Exchange. IIF is an insurance arm of the KFW Group owned by German government and managed by Swiss based Impact Investment Manager, Blue Orchard Finance Limited.

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Also, Continental Reinsurance Plc, CRe, is set to convene a court-ordered meeting subject to the order of the Federal High Court, Lagos, for purposes of the minority shareholders of the company for a revised proposal by the CRe African Investments Limited for the acquisition of all the outstanding and issued shares of Cre Nigeria for a consideration of cash and shares.

It will be recalled that the minority shareholders of Cre had kicked against the move initially, but the company increased the price per share offer, a move that may have secured the shareholders’ support.

Financial Vanguard learnt that some companies are shopping for both foreign and local core investors to take up majority equity stakes. Also Sovereign Trust Insurance Plc has opened the company’s rights issue for existing shareholders. The rights issue which commenced June 24, 2019, will run through July 31, 2019.

The company is offering over four billion ordinary shares of 50k each at 50k per share on the basis of one new ordinary share for every two ordinary shares of 50k each. About three more mid-tier companies are said to be at various stages of preparations for rights issues.

A director in one of the top operators told Financial Vanguard that many insurance companies are avoiding the capital market conventional option for recapitalisation because the market has already undervalued all insurance stocks. He said any public offer from the insurers will fail adding that even the rights issues are not going to succeed under the conventional approach due to the weak position of the industry in terms of shareholder rewards in the past four years.

According to him the rights issues are structured as modified private placement where some high net-worth investors have been positioned to take up the huge under subscription expected in the rights issues.

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He also said that a few insurers may be going for outright private placement adding that in all many of the affected companies would end up with concentration of shares in a few hands, a development which would enable them delist from the Nigerian Stock Exchange.

Major industry players have argued that for the industry to record significant growth on annual basis, there is need to increase capital with significant portion of such capital channelled towards deepening insurance penetration.

Although some shareholders have argued that the insurance companies have no need for huge capital but rather should come together to form a consortium when there is need to cover a big ticket risk, the operators are of the opinion that creating awareness that will lead to increased insurance penetration requires huge fund, as such the recapitalisation exercise is long overdue.

In May 2019, the NAICOM reviewed the capital base for life insurance companies from N2 billion to N8 billion, general business companies from N3 billion to N10 billion, composite companies from N5 billion to N18 billion and reinsurance companies from N10 billion to N20 billion. Insurance companies are expected to comply before June 30, 2020.

Shareholders’ opposition

While some weak companies are hiding behind shareholders to demand for time extension, some others are entering into partnerships with foreign investors. Some minority shareholders are opposed to foreign companies buying into the local companies for fear of forfeiting or diluting their investments.

Speaking on this, President of Independent Shareholders Solidarity Association, Mr. Sunny Nwosu, said that shareholders must fight against foreign takeover of insurance companies. Nwosu said, “Our position is that we must fight as much as possible to protect the insurance companies that give us one kobo or two kobo. All these insurance companies will be sold to the foreigners and they will tell us ‘how much is the shares quoted on the Nigerian stock exchange? It is a way to rob us of our investment so we must fight. So let them give us enough time to recapitalize.

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“What do we need high recapitalization in insurance for? The insurance industry has the ‘no premium, no cover’ policy. If we have a big ticket risk, we sit down together and form a consortium to attack the big ticket. Why must they say that we must go for N10 billion? If you are not prepared you will waste the money into things that may not be productive. Why must composite go for N18 billion? We don’t need it. We shareholders will see what we can do to save the insurance companies.”

Pro-recapitalisation opinions

President of the Chartered Insurance Institute of Nigeria, CIIN, Mr. Eddie Efekoha, said that a recapitalized insurance sector will lead to proper underwriting of risks.

He said, “There are fears that the recapitalization will lead to loss of jobs but those that will be left will work better and will be better remunerated. Employees will be paid on time, foreign direct investment can still come in, and we will all pay our claims and dividend regularly. The future is bright.”

•Tope Smart, Chairman, NIA

Also speaking, Executive Director of Allianz Nigeria, Mr. Owolabi Salami, said that the insurance industry can be transformed into a N2 trillion market and not just N400 billion.

Salami said, “We have the people, the GDP, and the industries. It may not be perfect but are we falling short somewhere? The entire insurance industry has 800 total branches to serve a population of about 200 million. Oando has more petrol stations than we do as an industry. First Bank and Union Bank combined probably have more branches than the entire insurance industry.

“If insurance companies do not have three million policyholders with each policyholder paying N50 to N100 thousand for insurance on the average every year, we will never own banks because we will never generate the funds.

“A lot of companies need to try to get a lot of people to come in and buy insurance. We need the insurance industry to enable people understand that there is value in buying life insurance and protecting oneself and family members but we are not doing it.

“There is competition for the money in the wallet of every Nigerian. Coca-Cola wants us to drink coke, so they want to take N50 out of our wallet. MTN wants us to keep talking; they want to take a N100 from the wallet. Nestle wants us to drink milo, they also want to take N100 from that. So everybody is scrambling for that little money in our wallet.

“However, MTN is spending over N10 billion a year to get us to talk, what is that? Marketing. Coca-Cola has a huge budget for marketing every year, Nestle also has a huge budget, and they are all talking to the same people. Everybody is competing for this wallet.

•Mohammed Kari, Commissioner for Insurance

“Then there is an insurance industry, which as a whole is probably not spending up to ten billion naira a year to talk to these same people to come and buy insurance. Who do you think we are hearing when we are hearing adverts?

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We are hearing coke, MTN, and the huge marketers. So, the insurance industry needs to perform so that when these guys are spending N10 billion a year, insurance industry is also spending N10 billion a year. Let’s do that for four years and you will find that many more Nigerians are buying insurance.

“Unfortunately, for two long, the insurance industry was under-capitalized and do not have the money to do huge campaigns. It was easier to have a small shop and chase big corporate accounts and government accounts. So we have three generations of people that insurance did not talk to in their formative years. So they are almost a lost generation.

Incentives and palliatives

“Now our regulator says, ‘you got to have more money.’ They know what they are doing and that’s where they want you to spend the money on. Some people are saying they don’t want it, even when the business is there.”

Also speaking, Chairman of the Nigerian Insurers Association, NIA, Mr. Tope Smart said that the association is working closely with NAICOM to promote the business of insurance and increase its contribution to the nation’s Gross Domestic Product, GDP.

Smart said that the NIA is engaging the Commission to define the components of the new capital level as well as the incentives and palliatives that the members will enjoy as way of inciting many companies to scale through.

Vanguard

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