Why Insurance stocks should trade below 50kobo per share – Foresight Securities

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By Nkiruka Nnorom

Insurance sector in the Nigerian Stock Exchange, NSE, has never been associated with good performance, especially in terms of pricing. Over the years, shares of over 90 per cent of the companies trade at par value and up till now, nothing has changed. Charles Fakrogha, Chief Relation Officer, Foresight Securities & Investment Limited, in this interview gave an insight on what should be done to revive the sector.

Excerpt:

THERE has not been any noticeable change in activity in the insurance sector; almost all the stocks in the sector still trade at par value. What is the reason for investors’ aversion for the sector?

There are reasons that will make investors to invest. They are looking for certain things; may be dividend, capital appreciation or just prestige that ‘yes, I owe shares in this company’. Now, they are not seeing dividend. There is no motivating factor compelling them to invest in these shares and the companies themselves are not even telling the investing public what is happening to them.

If an insurance company that is trading at 50 kobo comes out today and says, ‘look we are restructuring, we are creating awareness for people to invest in insurance, and we know that in the next one to three years, it will affect our bottomline’. I am telling you, investors will begin to invest in those companies. But no information to the public, we are not seeing dividend and there is no capital appreciation, it becomes very difficult for investors to invest in such companies.

•Charles Fakrogha, Chief Relation Officer, Foresight Securities

On the regulatory side, is there anything you think could be done to help the sector?

Yes, a lot could be done; the regulators can intervene. I even know that the Securities and Exchange Commission, SEC, has done something like that before. They call it regulatory intervention. They come into these companies, sack the Board, appoint an interim Board and give them a time frame to restructure. We have seen quite a number of them, but the problem is that sometimes, you bring in people to restructure, but they end up causing more problem for the company.

We have seen cases like that, but that does not mean that regulators will not continue to do their jobs. We have also seen the stock exchange calling for meeting with these insurance companies to discuss. Some people are even saying that some of the insurance companies are supposed to go below par value.

But the NSE is saying before we do that, let us call stakeholders – the insurance companies, stockbrokers, NSE and even the apex regulator. We want those shares to even do below 50kobo, but that has not been approved. NSE has this par value rule, it has been accepted but it has not been approved by SEC before they can begin to implement the par value rule.

(Interjects) Meaning that some of them could still fall below par value?

Yes, very possible, even up to 30kobo. We have seen people who have come to say ‘I have large volume, am ready to sell at a discount. It is doing 50kobo but I want to sell at 35kobo’. But because the par value rule has not been approved, it would be illegal to consummate such a transaction. So, if the NSE approves that and all the stakeholders agree, we will see transactions in some of these insurance companies.

But, for me, I don’t support that 100 per cent, what I think should be done is for the regulators to intervene in those companies. Find out what is wrong from management of those companies, and also make some of the companies that are listed on the exchange do compulsory insurance so that these insurance companies will have business.

On a general note, what is the future of insurance industry in Nigeria?

Well, I think that their primary regulator, National Insurance Commission, NAICOM, has done a lot and will continue to do more. But, I think that personally, awareness is key. Most Nigerians do not believe in insurance products. If you look at insurance index, that is the number of people that take insurance in Nigeria, it is very minute.

They should begin to do awareness so that people will begin to understand the benefit of insurance. Even if your company is doing group life assurance for you, you should personally do own personal insurance, not even the pension own, but you do insurance apart from the mandatory ones. You can insure your car, your property.

You should also have your own personal insurance where you do life assurance policy. Just create that culture, but this can only be done by the insurance companies creating more awareness. In fact, something like insurance studies should be introduced from the secondary school level, so that by the time they come out, trying to enter university, they already understand the benefit of insurance and it will be easy for them to begin take insurance policies personally. I am sure the insurance companies will boom, it will affect their bottom-line and they will begin to pay dividend to their shareholders.

I have also noticed that despite the poor performance among the companies, the sector has been recording positive return since this year. Could you explain the reason for this?

We have noticed that. Like I told you earlier, SEC has intervened, restructuring is going on and some of them have started restructuring. They are also doing a lot of awareness, but it should be on a consistent basis before you begin to see a turn-around in that sector.

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