A company’s willingness and abilities to pay steady dividend is paramount to shareholders because it signals the firm is of sound financial health. Late American oil magnate, industrial list and the richest man of his time, John D. Rockefeller, once said that the only thing that gave him pleasure was to see his dividend coming in.
However, the reverse is the case in Nigeria, where most insurance companies, nobbled by weak liquidity and deteriorating margins, do not reward their owners.
Anthony Rapu said he bought insurance stocks 5 years ago with the optimism that they will deliver a higher return on investment, but to his consternation, he hasn’t received a dividend warrant.
“They don’t care about their shareholders. The industry has to put its house in order so as to meet obligations to owners. I feel disappointed by these stocks, right now they are below N1 after the Nigeria Stock Exchange removed the cap on them,” said Rapu.
The 59-year-old businessman is one of the millions of Nigerians who has not been rewarded by companies they invested in and perhaps more worrisome is that the money could have been invested in other ventures.
Thirteen largest insurers paid a combined N12.35 billion as dividend to shareholders in 2018. This compares with the N78.50 billion Zenith Bank put on the plate of its owners.
Similarly, the total shareholders fund of these insurers in the period under review stood at N206.07 billion, which is lower equity of Zenith Bank’s total equity of N815.71 billion.
Johnson Chukwu, chairman Standard Alliance Insurance Plc, and chief executive officer of Cowry Asset Management Ltd said that the industry has not recovered from the financial crisis of 2007 and 2008 and were still building their balance sheets by way of restructuring.
“A lot of these them have negative reserves and the law doesn’t allow a firm in such precarious situation to pay dividend,” said Chukwu.
The average industry dividend per share of is N0.06, this compares to Zenith Bank’s N2.70.
The stock markets, the symbol of capitalism reward firms that serve public interest, and on the other hand, punish those that fail to meet public interest.
Shares of insurers are moribundly stuck at less than N0.50 and the N20.50 billion market capitalization of AXA Mansard Insurance Plc is less than the N49.25 billion market value of Tier 2 lender, Fidelity Bank (as at Thursday’s close of trade).
Paul Uzum, Equity Trader at Royal Guaranty and Trust Limited, said investors easily lose confidence in a company that does not reward them as people will start doubting the authenticity of the annual report.
“Imagine when a company is not paying dividend and the directors are receiving jumbo salaries and bonuses, buying expensive cars, and paying expensive flight tickets,” said Uzum.
“If these firms pay steady dividend, they will attract a new clientele. That’s why most insurers are badly priced.”
Ozim, however, said Custodian and Allied Investment has distinguished itself as it has been rewarding its owners in the last five years, which is why its share price has moved from between N1 and N2 as at 2014, to between N5 and N6 today.
Insurers are not liquid enough to take on more risk and invest in investment securities that will help magnify revenue and underpin profit. In better climes such as the United States, the United Kingdom and Asia, companies are in a solid liquidity position that they buy banks and skyscrapers that fetches them rental income.
Earlier in the year, China announced that insurance companies are allowed to invest in perpetual bonds and Tier 2 capital bonds issued by certain banks as the government seeks to bolster banking industry capital.
During the financial crisis of 2008, Life insurers in the United States weakened by losses on their immense investment portfolios and were manoeuvring to get a slice of government bailout funds by buying up tiny banks.
But the insurance industry is bedevilled with a myriad of challenges such as cultural beliefs, lack of awareness about the benefit of taking up a cover, lack of trust, and sluggish economic growth.
In a country where over 50 percent of its people live on less than $1.90 a day, taking up a cover is luxury of the average man on the street.
Nigeria, with a population of 180 million people, has a penetration rate of 0.3 percent.
That compares with South Africa at 14.7 percent, Kenya 2.8 percent, Angola 0.8 percent and Egypt 0.6 percent. Similarly, the sector’s insurance density – a measure of industry gross premium per capita – is still one of the lowest when compared to peers – South Africa $762.5, Egypt $22.8, Kenya $40.5 Angola $30.5 and Nigeria $6.2.
But the Nigeria Insurance Commission (NAICOM), the body that regulates insurers, has jerked up capital bases of firms, recognising that there are too many weak firms that cannot compare with their peers in Sub Saharan Africa.
The revised paid-up capital requires life insurance business operators to raise their capital from N2 billion to N8 billion; general businesses from N3 billion to N10 billion, while that of composite businesses has been jerked up from N5 billion to N18 billion