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Insurers seek profits outside risk underwriting to satisfy shareholders
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L-R: Juliet Madubueze, immediate past president, Chartered Institute of Bankers of Nigeria (CIBN), with Erastus Akingbola, president at the investiture of Akingbola as the president of CIBN in Lagos at the weekend.
The recapitalisation exercise in the insurance sector may have compelled risk underwriters to abandon their traditional functions for other ventures they consider less risky and fast in income generation.
And the capital market, pension fund, real estate and oil and gas have become the preferred windows. The National Insurance Commission in 2006 directed composite insurers to shore up their capital base to N5 billion, Life insurers N2 billion, Non Life N3 billion and Reinsurance N10 billion.
Those that have achieved the new capital level have had their shareholders base raised, and to grow or sustain earning per shareholder, they have opted for windows that would generate large income.
Business Day has learnt that many of them lack the skill to invest the pool of fund in risk underwriting to be able to meet shareholders expectation. It is understood that, although many have improved their premium payment profile, the old stigma is still sticking on them. Sunny Oroge, managing director and chief executive officer of Crossword Investment and Securities Limited , confirmed the development and warned that this could pose a great danger to the growth in risk underwriting.
As a business diversification strategy, many insurance companies are now deploying the new capital into the stock market. And the result has been the earlier surge in liquidity and the attendant price spiral. The excess liquidity led to even penny stocks without fundamentals to leap in prices. It took the sanction of the alleged culprit companies by the Securities and Exchange Commission and the new directive by the Central Bank on margin account to moderate prices.
Experts had expected that with the consolidation, the sector would in future be big enough to own banks as is the case in developed economies, but financial analysts fear that if the distraction continues, the basic objective of the consolidation of the insurance sector, which is ensuring efficiency and growth, would be a mirage. Already, growth in the sector is put at 15.3 percent from 2003 to 2007, while the insurance culture is yet to take root.
The financials of many are not too impressive, which have made investors in insurance stocks to exercise some caution.
There are also strong indications that stock brokers may be bedeviled by the same anomaly.
Many are lamenting that the new recapitalisation levels as directed by SEC may compel them to abandon their professional functions of helping investors make money from the market. Stockbrokers are worried that this would leave them with little option but to invest the money in alternative windows that would allow them generate adequate income to satisfy their new shareholders.
There are also concerns that with so much money available to them, they would be competing with their client or be interested only in institutional and net-worth investors with large chunk of money. Either way, marginal players, who may be relegated, would be the losers.
Those that have achieved the new capital level have had their shareholders base raised, and to grow or sustain earning per shareholder, they have opted for windows that would generate large income.
Business Day has learnt that many of them lack the skill to invest the pool of fund in risk underwriting to be able to meet shareholders expectation. It is understood that, although many have improved their premium payment profile, the old stigma is still sticking on them. Sunny Oroge, managing director and chief executive officer of Crossword Investment and Securities Limited , confirmed the development and warned that this could pose a great danger to the growth in risk underwriting.
As a business diversification strategy, many insurance companies are now deploying the new capital into the stock market. And the result has been the earlier surge in liquidity and the attendant price spiral. The excess liquidity led to even penny stocks without fundamentals to leap in prices. It took the sanction of the alleged culprit companies by the Securities and Exchange Commission and the new directive by the Central Bank on margin account to moderate prices.
Experts had expected that with the consolidation, the sector would in future be big enough to own banks as is the case in developed economies, but financial analysts fear that if the distraction continues, the basic objective of the consolidation of the insurance sector, which is ensuring efficiency and growth, would be a mirage. Already, growth in the sector is put at 15.3 percent from 2003 to 2007, while the insurance culture is yet to take root.
The financials of many are not too impressive, which have made investors in insurance stocks to exercise some caution.
There are also strong indications that stock brokers may be bedeviled by the same anomaly.
Many are lamenting that the new recapitalisation levels as directed by SEC may compel them to abandon their professional functions of helping investors make money from the market. Stockbrokers are worried that this would leave them with little option but to invest the money in alternative windows that would allow them generate adequate income to satisfy their new shareholders.
There are also concerns that with so much money available to them, they would be competing with their client or be interested only in institutional and net-worth investors with large chunk of money. Either way, marginal players, who may be relegated, would be the losers.
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