In spite of improvements in the financial services sector, the insurance subsector has continued to contend with a variety of challenges. The most prominent among these trials is the negative perception of the insurance business, which has continued to weigh down on bottom line of most of the companies in the sub-sector. Contrary to the expectation that the Nigerian Insurance industry would be the next growth sector, the performance of the industry, despite considerable improvement, remains far below optimal. Nigerian insurers face the same challenges as their counterparts in developing countries.
As a developing country, the challenges for Nigerian insurance companies also include enforceability of regulations. Experts believe that the growth target expected for the industry by the regulators would only be achieved through the enforcement of compulsory insurance.
Expectedly, the success of Nigeria’s insurance industry will depend largely on the resolution of the identified challenges, especially the enforcement of compulsory insurance. Other key success factors are prompt claim settlement, competent management and corporate governance, innovative products, human capital and technology. Since the crash of the nation’s capital market in 2008, negative perception has trailed the subsector, which has been compounded by inability of about 85 per cent of the companies in the industry to pay dividend to shareholders for many years. Market watchers linked the inability of the sub-sector to rise above the nominal level to crisis of confidence. Even the few ones that raised high expectation for good results ended up posting negative financial results. Wapic Insurance Plc, one of Nigeria’s oldest insurance companies, got its fair share from the dwindling fortune of the sub-sector, as the movement of its share price has tilted to negative trajectory.
The insurance firm’s price trend reflects the spike in values observed in 2007 through to the early part of 2008, as post-consolidation and speculative trade pushed prices upwards. However, the extensive economic crisis has seen the company, along with other insurance participants, badly beaten. Wapic ended year 2014 on an impressive note as it was able to translate the top-line performance to bottom-line growth leading to a growth of 109 per cent to N58.6 million from a negative of N629.1 million recorded in the corresponding period of 2013.
However, expectations that the company will sustain the profitability seems bleak following poor outing that led to a report of 29.76 per cent decline in profit during first quarter ended March 31, 2015. The share price, which closed at 80 kobo per share on June 30, 2014, has dropped considerably. At the close of business last Friday, the company’s share price stood at 54 kobo – a decrease of 26 kobo or 32.5 per cent year-to-date.
Financials
In full year 2013, Wapic Insurance had reported a N208 million loss in profit after tax. This was contained in the company’s fourth quarter 2013 financial statement submitted to the Nigerian Stock Exchange (NSE). The company recorded a loss in profit after tax of N208 million in 2013 as against a profit of N383 million in the comparable period of 2012.
Wapic equally posted 213.9 per cent loss in profit before tax, from a gain of N552.3 million in 2012, to a loss of N629.1 million during the year under review. The results also indicate a 10 per cent drop in Wapic’s gross written premium (revenue) from N4.17 billion in 2012 to N3.76 billion in 2013. However, the tide of profit line changed as its half-year results for the period ended June 30, 2014, was on a positive note. The company’s gross premium written for the second quarter appreciated by 29.3 per cent to N3. 704 billion, from N2.866 billion recorded in same quarter of 2013.
Profit after taxation also appreciated from N174.8 million in second quarter of 2013 to N216.19 million in same quarter of 2014, accounting for an increase of 26.3 per cent.The group announced a premium of N5.20 billion for the financial year ended December 31, 2014, an increase of 38 per cent when compared with N3.76 billion recorded in the same period of 2013.
Profit before tax was up 109 per cent to N58.6 million from a negative of N629.1 million recorded in the corresponding period of 2013. According to the result presented to the Exchange, profit after tax rose from a loss position in 2013 to N237 million. Further analysis showed that solvency ratio stood at 171 per cent, which was significantly above the regulatory requirement threshold of 100 per cent. However, the current financial year looked gloomy for the company as the first quarter results showed a 29.76 per cent decline in net earnings.
The company’s profit after tax for the first quarter as released by the NSE stood at N110.043 million as against N156.670 million recorded in 2014. Gross income written was up 13.46 per cent to N2.716 billion from N2.625 billion recorded in 2014.
Looking ahead
Speaking on the results during the Annual General Meeting (AGM) in Lagos, the group Chairman, Aigboje Aig-Imoukhuede, explained that the group is now well positioned to deliver greater shareholders’ value in coming years. The immediate past Group Managing Director of Access Bank stressed that the company, in the year under review, attracted more customers and recorded progress in the implementation of corporate strategy. He said: “With the company’s professional workforce and their commitment to the corporate vision, we are able to record some progress in our strategy implementation achievements.
“While many initiatives were launched in 2014, we need to ensure their successful implementation and execution. I am confident that as we build the necessary competency and capacity within our workforce, we remain very committed to Wapic’s vision and objectives.”
He noted that the insurance industry in the country is growing at the rate of 20 per cent and Wapic Insurance is growing under 40 per cent. He said that Wapic is doing better than the industry. “I am confident that by next year, we will pay dividend, as the company has committed to serve more customers and make more investments,” he added. Managing Director of the company, Mr. Ashish Desai, pointed out that despite economic and industry challenges, the company is exceptionally positioned to strategically transform itself in its quest to achieve market leadership over the medium term horizon.
Conclusion
Notwithstanding the fluctuation in profit, investment analysts have forecast that the insurance sector will outperform the market. This has been the consensus forecast since the sentiment of investment analysts deteriorated in recent times. Insurance companies are the worst hit in the capital market in terms of drop in share prices.
According to analysts at Meristem Securities Limited, the insurance sector has lost 7.9 per cent yearto- date compared with the 38 per cent gain in the same period in 2013. However, despite having faced several challenges recently, the insurance sector is believed by market watchers to experience positive times.
This stemmed from the various reforms and initiatives introduced by the National Insurance Commission (NAICOM) and expected inflow of foreign investments – especially now that the jittery over the outcome of the general elections are over and a new government has been sworn in.
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