By Peter Egwuatu

THE Head of Research, Coronation Merchant Bank, Mr. Guy Czatoryski, has said that there is no correlation between the size of insurance companies balance sheet and return on equity, as shareholders, most times, get low return on their investment irrespective of the profit made.

In an interactive chat with Financial Vanguard, Czatoryski stated that there is need for some insurance companies without brand name to synergize with the larger ones to make good returns on investment to shareholders.

NAICOM

He said: “Our research has shown that there is no correlation between size of insurance companies’ balance sheet and return on equity. There is going to be strong competition in the industry going forward.

“Insurance companies have to invest for future growth if they want to make high profit that can make them record high return on equity. The market share of all these small insurance companies would have to migrate to bigger companies, if they are to be profitable. The shareholders would want to invest in such companies that have growth potentials.”

While commenting on the recapitalisation of the insurance industry, he stated: “NAICOM is trying to ensure that the small and weaker companies meet new capital requirement in order to meet their obligations.

“Whether you are small or big, NAICOM wants to stabilize the insurance industry since it is their responsibility to do so. So, it is good for the industry and the economy if the insurance industry is well capitalised. The well capitalized companies will continue to grow faster than low capitalized companies.

“ In the future we are going to see some small insurance companies with very good niche and strong specialization are going to be profitable and be able to grow and the large insurance companies with general spread of insurance business will take opportunity of the different segments of the market to grow as well.

“So, in the future you can find small companies growing well and be profitable. But in the middle between small and large insurance companies, if the small companies can meet size along the line then they will match with the larger ones to contest for market share and then we will begin to see the gap closing between the balance sheet and return on equity.”