Investors who put money in the stocks of insurance companies at the start of 2021 have been rewarded with six times the average return of the stock market.
Stocks of the 10 insurance companies that make up the insurance index on the stock exchange have jumped by 19 percent this year, according to data from the Nigerian Stock Exchange (NSE), which is six times more than the 3.08 percent return of Nigerian stocks as at February 9.
The rally in insurance stocks is backed by a better-than-expected financial performance in 2020, with combined revenues hitting a four-year high, according to data compiled by BusinessDay.
Wapic Insurance is up by the most with a year-to-date return of 42 percent. NEM Insurance is up 39.66 percent while Mansard and Lasaco Insurance are up 23.81 percent and 20 percent, respectively. AIICO and Custodian Insurance are also up 7 percent and 2.6 percent, respectively.
In a sign that it is not too late for investors to join the party, investment bankers have BUY ratings on most insurance companies, with upside potentials that look hard to resist on paper.
Of the aforementioned insurance stocks, Mansard Insurance has the highest potential to rise further, according to BusinessDay’s analysis of investment reports by leading investing banks.
Mansard is forecast to rise by as much as 122 percent while AIICO is expected to rise by 30 percent. Custodian Insurance is tipped to return 21 percent while Nem Insurance is likely to gain 17 percent.
Mansard grew its profit after tax by 47.7 percent to N4.6 billion in 2020 as revenues hit N40 billion, the highest in four years. AIICO also saw a 20 percent jump in profit after tax to N6.75 billion with revenues also at a four-year high of N108.2 billion, according to Bloomberg data. Custodian Insurance, the biggest insurance firm by net assets, is yet to release its 2020 full-year results.
NEM Insurance’s revenues in 2020 also hit a four-year high of N17 billion, which lifted profit after tax to N4 billion, also the highest in four years.
Top insurance companies in Nigeria were expected to record higher claims in 2020 compared with 2019, as rising insecurity, health challenges and protests triggered higher risks in a year marred by a global pandemic and a violent end to peaceful protests against police brutality back home in Nigeria.
According to data from the unaudited accounts of the eight biggest insurance firms in Nigeria, net claims are expected to top N112 billion in 2020, the highest since at least 2016.
The rising claims were however subdued by record premiums.
Net premiums collected during the period are estimated at about N164 billion, which is a 24.2 percent increase from the N132 billion recorded in 2019.
This is despite a difficult year where most businesses were cash strapped and had to resort to sweeping cost-cutting measures.
With a projected N112 billion in net insurance claims in 2020, insurance firms spent about 31 percent more on claims during the year compared to the N85.3 billion incurred in the whole of 2019, and more than double the N46.1 billion paid out in 2016.
That means Net claims as a percentage of premiums rose from about 54 percent in 2016 to about 68 percent in 2020. The year started brilliantly for insurance stocks as the insurance index initially raced to a 30 percent return in January alone.
However, aggressive profit taking in insurance stocks over the past week has sent the share prices back to earth, reducing year-to-date return to the current 18 percent.
