GROWING CONCERNS OVER STATE OF INSURANCE STOCKS

A vibrant capital market is essential to the growth of the economy, especially in terms of raising much-needed long-term finance for critical infrastructure, housing and the manufacturing sector.

Solid economic growth in any country is closely linked to the joint development of the financial sector and the capital markets.

However, currently, the capital market has achieved almost 60 per cent of the 66,000 index recorded in 2008 before the global financial meltdown but as the equity market continues to explore the green territory, the insurance sub sector of the financial sector of the economy has remained in an abysmal trance and less visible in the scheme of things.

Some investors in the insurance subsector of the market are lamenting their fate over what they described as par value state of insurance share prices.

They noted that, unlike other subsectors, the insurance companies, rather than appreciating in value, have remained relatively stagnant even as some have remained at the nominal prices of 50 kobo at which they were quoted on the market.

Recall that when companies approach the equities market for listing of their shares, the nominal value quoted is usually 50 kobo as against the actual price they are being sold to the investing public.

Speaking with LEADERSHIP, the Managing Director, Crane Securities Limited, Mr Mike Eze, said some insurance companies are not helping matters as they are most visible among companies that are often sanctioned for breaching post listing requirements.

He linked the inability of the sub-sector to rise above nominal value level to crisis of confidence which, according to him, the few ones that raised high expectations for good results, ended posting negative financial results.

'There were high expectations that some of them will bring good results to the market investors started taking positions on the insurance stocks, but they ended posting negative results which now has a spiral effect on other insurance companies, hence investors started dumping their shares,' he explained.

Speaking also against the background of the poor state of investment in the insurance industry, shareholders under the aegis of Coalition Shareholders Association of Nigeria, said the investment loss in the industry since the meltdown in 2008 is unquantifiable, noting that rather than shareholders getting succor in the light of present shares appreciation, the reverse has been the case in the insurance subsector.

According to the president of the association, Chief Adolphous Wakama, lack of interest in insurance stocks, following the huge meltdown in the market in 2008-2009, have contributed largely to the high value decline hence investors hope has been put in abeyance for an earlier recouping of their investment in the sub-sector.

A broker, on the condition of anonymity, reacting to the state of investment in the industry, said that the insurance subsector is not immune to the general economic downturn plaguing many nations of the world.

'The subsector was hard hit because the money raised during their capitalisation had melted with the market'. Most of them are currently faced with liquidity problems too.

He noted that the subsector performance has been so poor; adding that after their consolidation, there should have been growth in their income and others.

'What is seen in the market is that, the insurance companies seem not to be up there. So investors' confidences are really down on it. They are just in the market and they are not doing much to improve on their performance.

'In exception of one or two of them, like Guaranty Trust Assurance, looking at their role and performance over time and then the likes of Custodian Alliance and NEM Insurance Plc, they have long term of corporate bond in the stock management. Others are just doing the job like one man shop, one man coming to the market to get money from the public and going into the business.

'It was actually a failure on the part of the regulator to do the thorough work. Some of them should not have come to the market initially; some of them are faced with a lot of management problems,' he said.