Rencap Research Report - Insurance

[newton]

Find attached the Rencap report on the insurance industry

[zainabusman]

Originally Posted by newton

Find attached the Rencap report on the insurance industry

Thanks. Getting this e copy has been a challenge.

[newton]

Yeah, u can say that again...

though i got hold of it some 2wks back, couldn't upload it as i way away in abj and my wk schedule was full.

[BigSeun]

Originally Posted by newton

Find attached the Rencap report on the insurance industry

You are the man.
Thanks

[tobenna]

Excellent, Newton.
Well done.

[balaliyu]

In the light of the recent hapenings in the market...I dare say that the report is very good, but too bullish. A lot of the valuations for these stocks in the months before the bears, was driven by liquidity from the Financial sector.

In the long-run, I think that that level of liquidity will be curtailed, either because that level doesnt 'truly exist' (as the Dec31 rule almost exposed)..or the banks and co, will really have to start moving these funds to the real sector as we all get wiser to the shenanigans of the market.

Overall, I do think that the Insurance sector will witness a Modest growth over time, mainly because our Insurance culture hasnt changed much in this country. People have faith in the concept of insurance when the social security structure in an economy works, not when they are unduly concerned with meeting basic needs. The only possible big business driver is the National content drive in the Oil sector, but again Im skeptical, because the truth is that our Oil sector is already threatended by labor unrest, militancy, corruption and inefficient bureacracy. That is why, a war zone like Iraq will be producing much more Oil that Nigeria today.

Additionally, the recent capitalisation is only a drop in the ocean of the capacity that these insurance companies will need to underwrite Oil business risks -even our banks today with all their 'billions' (I didnt say imaginary), can only finance a small fraction of this business. - so there is still along way to go.

I'm not unduly pessimist about the sector - afterall, I have a lot invested in it, but I think a bear run like we've expereinced, makes realism a virtue for us all.

Cheers...B

[Avocado]

How time makes a fool of us all, including well-heeled researchers and analysts. The Rencap report is bulky, and it's even more interesting with the May '08 issue date. Interesting comments, excepting that bit about Nigeria and Iraq as war zone. Iraq has in excess of three times Nigeria's proven reserves, so Nigeria can't sensibly be producing much more at the current rate without adequate reserves 'replacement' by new discoveries. Yet, the Western desert in Iraq is unexplored. Nigerian companies most probably carry a relatively very small load of the insurance for operating companies in the oil sector.
.

[Taipan]

Funny, but I think I flow with the bullishness of the RenCap report.
One of the things I believe would work in favour of the Insurance companies are their low absolute prices. I believe quite a lot of Nigerians, not being conversant with the issue of fundamentals, will keep on going for these companies. I also agree with RenCap that the Insurance companies have only one direction, and that is skywards. The worst has happened, now it's time for the best. It would be sad if one year from now, I think about the Insurance sector and regret not having participated in it fully.
...
But time will tell.

[hispy99]

Recapitalisation: 10 months after
By NIKE POPOOLA
Published: Monday, 29 Sep 2008
In developed countries, the insurance sector is one of the mainstays of their economies because of its large contribution to the gross domestic product, but for several decades, the reverse was the case in the insurance industry in Nigeria.

However, experts foresee brighter prospects for the industry as the last recapitalisation witnessed in the sector has no doubt placed the sector on a better frontier to contribute to economic growth.

The recapitalisation exercise, which began in September 2005, forced most companies to go to the stock market or merge with others in order to be able to increase their capital base and meet with the requirement before the deadline for recapitalisation by February 28, 2007.

The Federal Government had ordered life, general and reinsurance companies that wished to continue in business to increase their minimum capital base from N150m, N200m and N350m to N2bn, N3bn and N10bn in that order respectively.

By mid November 2007, 49 insurance and reinsurance companies finally scaled the verification hurdle and were reported to have successfully recapitalised.

This was trailed by the release of the fund raised from the public by insurers that was kept in the custody of the Central Bank of Nigeria.

Recently, NAICOM reissued licences to Nicon Insurance Plc and Nigeria Re-Insurance Corporation which brought the total numbr of companies to 51.

Ten months, after the last recapitalisation in the sector, investors have impatiently continued to mount pressure on the insurance companies to deliver returns after pumping in capital to assist the companies to scale the recapitalisation hurdle.

However, the post consolidation performance of the insurance sector can be viewed from several aspects.

These include the attractions of foreign investors, capital base, branch expansion, staff capacity, product development, and returns to investors among others.

The Managing Director, Mutual Benefits Assurance Plc, Mr. Akin Ogunbiyi, confirmed that $600m came into the sector as direct foreign investment through the Nigerian Stock Exchange during insurance industry’s consolidation.

He noted that the fact that investors have been investing billions in the sector was a sign that the perception about insurance in Nigeria had changed for the better.

According to him, insurance companies were now stronger and set to compete with banks, telecoms and other sectors to get a higher percentage of disposable incomes.

With international involvements, he added, lots of stakeholders had come in to enhance business growth in the sector.

This, he added had made corporate governance more pronounced within the industry.

“We used to have mushroom companies because of the entry requirement, now the surviving companies are what you can call mega professional ethical companies, efficiently run. So this is what has become of the industry,” Ogunbiyi said.

Capital wise, the industry, no doubt had recorded a remarkable increase.

The Nigerian Insurers Association released the last financial report of the sector which stated that in 2007, the sector recorded a premium income of N117bn from N82bn that it posted in 2006, a 42 per cent rise.

The financial report added that the sector’s market recapitalisation increased almost ten-fold N25.9bn in 2006 to N206bn in 2007.

It added that during the period under review, the industry paid claims totalling N35.2bn, thus attesting to their ability to pay genuine claims promptly and expeditiously.

Prior to recapitalisation, the insurance companies were not very visible and accessible, which gave room for fake operators with proliferation of fake certificates.

However, in the post consolidation era, the companies have been adopting different methods to increase their branches in order to become more accessible.

The most popular strategy, which the bank-owned insurance companies adopted that other insurance companies also copied is the bancassurance strategy.

Bancassurance is the provision of a wide range of banking, savings, insurance, investment and general insurance products to the bank’s existing customers through the banks networks.

The Managing Director, Intercontinental Wapic Insurance Plc, Mr. Segun Balogun, noted that most of the banks had many branches all over the country and all they needed to do was to station their staff in each of the branches while they market insurance products to the bank customers.

This has made it possible to walk into most banks and purchase bank services as well as insurance services.

Operators have continued to adopt this economical approach, which they were still trying to make more efficient by employing more staff and stationing them in the bank branches.

Some of the companies have also taken bold steps and established branches outside the shores of the country.

Mutual Benefits Assurance commenced operations in Liberia in January, Equity Assurance Plc and Regency Alliance also opened shop in Ghana. Staco Insurance Plc opened in Sierra Leone, while Industrial and General Insurance acquired majority stake in Rwanda’s largest insurer, SONARWA.

One of the biggest challenges that the industry faced immediately after its successful consolidation was the dearth of competent human capacity to manage the increased liquidity at their disposal.

The companies that hitherto managed capital of between N150m and N350m suddenly became faced with the challenge of managing capital of about N2bn and N10bn.

Worried by this dearth of competent staff to foster the developments, the President of the Council Chartered Insurance Institute of Nigeria, the educational training arm of the industry, Mr. Adeyemo Adejumo, said that the institution would lay more emphasis on staff training.

He said that the numbers of professional’ staff presently available to the industry was grossly inadequate despite the reduction in the number of companies because of expansion of businesses and increase in branches at home and abroad.

According to him, the industry had 2,158 associates and 109 fellows making a total of 2,267.

The governing council, he said, ratified a policy aimed at compelling insurance organisations to include training as part of their employment package adding that the new policy was a mandatory continuing professional development programme.

However, one of the notable changes was also the emergence of new products into the market by both the life and general insurance companies.

Different products, that could meet the needs of the low income earners were introduced, which was further aimed at increasing grassroots participation in insurance.

For example, Crusader Life Insurance Limited introduced the Crusader funeral policy to cater for burial expenses of the aged, Consolidated Hallmark Insurance Plc, introduced on-line third party motor insurance to help motorist purchase third party motor vehicle insurance certificates on-line, while Sovereign Trust Insurance Plc inaugurated the Easy Trip Insurance to provide cover for losses and inconveniences for aviation travellers just to mention a few.

In terms of returns to investor, almost all the companied made sure they paid dividend to their shareholders.

Although some investors were not contented with the dividend paid, some expressed satisfaction that they understood the need for their companies to have adequate reserves with the hope that they would get better returns in the next financial period.

The dividend paid by most of the companies, however has been low in absolute terms compared to the banks, the two companies, which had paid the highest dividend so far still remained Niger Insurance Plc and Industrial and General Insurance which paid 15k per share.

However, as the industry is still struggling to gain its stand during this developmental period it had continued to grapple with the worrisome practice of rate cutting.

By this practice, underwriters offer ridiculously low premium in such a way that can make it unable to pay claim, all with the aim of attracting customers.

Experts have, however, said that, with enhanced supervision, the sector would adjust and hence, conduct business with international standard.

The Commissioner for Insurance, Mr. Fola Daniel, said that with the recent enforcement of some insurance laws, which had been left dormant in the Insurance Act, the Nigerian insurance industry would soon overtake other sectors.

He noted that with the efforts set to achieve the 100 per cent local content in oil and gas, the companies were already equipping themselves in order to be able to meet the challenges of retaining the risk in the country.

The recent launch of the compulsory insurance of public buildings and buildings under constructions, he noted was a major landmark, which would also contribute immensely to the premium of the sector.

Also, recently, no fewer than 72 staff inclusive of the top directors of the National Insurance Commission lost their jobs in the restructuring presently taking place in the commission.

Daniel, said that this was part of the effort of the government to revamp the commission and uplift its standard to other regulators like central bank and Nigerian Security Exchange.

[knightofdelta]

That last post was rather glowing but all may not be that rosy for the insurance companies because of what is happening in the foreign financial sector. AIG had to be bailed out by the US Government when they were about to go down the drain and I believe that they have a large stake in Aiico. Most of the Insurance companies have the backing of some foreign financial institutions except for Mutual Benefit. I will still play the waiting game with the Insurance sector.

[zainabusman]

Originally Posted by knightofdelta

That last post was rather glowing but all may not be that rosy for the insurance companies because of what is happening in the foreign financial sector. AIG had to be bailed out by the US Government when they were about to go down the drain and I believe that they have a large stake in Aiico. Most of the Insurance companies have the backing of some foreign financial institutions except for Mutual Benefit. I will still play the waiting game with the Insurance sector.

Indeed u should be very careful with Insurance companies. Remember they tend to invest in the stock market as a way of making money to pay off claims and pensions. In a market that has been on a steady decline with low volatility (our experience of recent), Insurance companies suffer a lot. This happenned in the UK bw 1999 & 2002. Only Insurance companies that were able to bail out of the capital market fast were spared.