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Mansard, Aiico, Continental Re and Wapic, top insurance stock picks for 2017


January 24, 2017 | 1:05 am
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Insurance Policy

Amid a myriad of challenges stunting the growth of listed companies in the country, AXA Mansard Insurance, Aiico Insurance, Continental Reinsuramce, and Wapic Insurance are among some of the stocks to invest money in 2017.

This is because these firms have recorded strong earnings, a released reserve, favorable combined ratio (CR), efficient underwriting capacity and a solid return on equity (ROE). They have a strong valuation that can attract buyers searching for value stock to place their money.

AXA Mansard Plc closed at N1.60, 7.38 percent above its 52-week low of 1.49, set on Dec 23, 2016. The company’s price to book ratio of 0.80 times book value makes it a good entry point for investors. The attractive stock was driven by an impressive third quarter results that beat analysts’ expectations of a weak earnings given an economic downturn that plunge the country in its first recession in 25 years.

For the first nine months through September 2016, the Nigerian  insurer’s net income spiked by 71 percent to N3.04 billion, thanks to a surge in foreign exchange gains.

Return on equity (ROE) increased to 14.40 percent in September 2016 from 10.09 percent the previous year while the return on assets (ROA) moved to 5.31 percent in the period under review as against 3.41 percent the previous year. AXA Mansard’s 80.15 percent combined ratio (CR), Which is less than the 100 percent threshold means the insurance stock is less dependent on investment income to compensate for any (underwriting) losses.

The favorable CR resulted in a positive underwriting profit of N2.27 billion in the nine months period to September 2016 while total claims expenses stood at N5.30 billion the same period.

Another stock pick is AIICO Insurance Plc. On Friday, the company closed   at N0.60, 7.14 percent above its 52-week low of N0.560, set on Oct 27, 2016. Its price to book ratio is 0.42 times book value.

For the first nine months through September 2016, AIICO’s net income increased by 13.05 percent to N3.04 billion as against N2.69 billion the following year. Return on equity (ROE) increased to 30.83 percent in the period under review from 28.87 percent the previous year.

Underwriting profit for the month of September increased by 115.36 percent, the highest among 15 firms on the NSE Insurance Index while combined ratio stood at 78.48 percent in the period under review. Continental Reinsurance Plc, one of the largest insurers in the country should attract investors to its shares given strong earnings that will deliver dividend to shareholders.

On Friday, the company’s shares closed at N1.06, -11.67 percent below its 52-week high of N1.20, set on Jul 15, 2016. Its shares trade at 0.58 times book value.

Profit before tax (PBT) surged by 143.96 percent to N3.75 billion in September 2016 from N1.53 billion the previous years. Return on equity (ROE) moved to 20.53 percent in the period under review as against 9.85 percent the previous year. Return on assets (ROA) increased to 9.52 percent in the period under review as against 5.51 percent the previous year.

Continental Re’ combined ratio stood at 95.37 percent, lower than the 100 percent threshold. The high CR was due to high payouts to policy holders in the period under review.

Another company to watch out for this year is Wapic Insurance Plc.

The company’s  consistent growth at the top and bottom lines, underpinned by innovative products, should see stock price gain.

On Friday, Wapic closed at N0.53, -5.36 percent below its 52-week high of 0.560, set on Jan 12, 2017. Its share price is 0.43 times value of assets, which makes stock price attractive.

For the first nine months through September 2016, the company’s net income surged by 3331 percent to N1.14 billion, the strongest growth at the bottom lines among the 15 firms on the NSE Insurance Index.

Return on equity (ROE) increased to 6.93 percent in September 2016 from 2.20 percent the previous year while return on assetsn(ROA) moved to 4.10 percent in the period  under review as against 1.39 percent as at September 2015.

Wapic Insurance’s gross premium written (GPW), gross premium written (GPI) and net premium income (NPI) was up 12.91 percent  26.14 percent and 10 percent to N6.40 billion, N5.52 billion N3.32 billion, respectively.

Experts have expressed concern over the insurance firms’ stock being  stuck at below N1 despite recording a strong underwriting performance.

For instance, for the first nine months through September 2016, the cumulative underwriting profit of 15 most liquid insurers on the NSE Insurance index, with a combined market cap of N90.50 billion, stood at N23.32 billion, though 4 percent lower than last year’s figures, data gathered by BusinessDay shows.

While the combined net income of 15 most liquid insurers are at N9.6 billion, most of them do not have a steady dividend policy and hence  their  dividend yields (DY), nil. Only Aiico, AXA Mansard, Mutual Benefit, NEM, Niger, and Wapic have a DY while the rest have zero dividend preferable stock because they are in their growth phase.

However, some experts blame the putrid share price of firms on the tough and unpredictable macro environment.

A sharp drop in the price of oil and a sever dollar scarcity hit the economy of Africa’s most populous nation as GDP contracted by 2.20 percent in the third quarter of 2016,  the worst in 25 years.

Because manufacturers are unable to source dollars to import raw materials and machinery to meet production demand, top lines shrank  Consquently, many businesse were forced to scale back operations while some closed shops. An economic downturn means insurance firms will lose huge premiums.

“A slowing down of the economy will necessarily imply a decline in insurance business,” said Funmi Babington-Ashaye, managing director/CEO Risk Analyst Insurance Brokers Ltd.

“For instance, with a shrinking economy, a number of employment opportunities will be lost, contributory pensions by employees will decline, life assurance………….threatened, manufacturing companies, Airlines etc are closing down and hence not renewing their polices,” said Ashaye.

This challenges have left the Nigeria insurance sector fragmented.  The insurance sector contributed less than 1 percent to the country’s GDP.  This means Nigeria lag behind some sub Saharan African countries in terms of premium contribution to the economy.

South Africa’s insurance premium contributed 15 percent to its GDP in 2013, making it the country with the highest insurance penetration in the world, according to PWC report

Kenya’s insurance market generated $1.5 billion of insurance premiums in 2013, contributing 3.4 percent to its $53 billion the GDP.

An industry player said the militant attack in the oil facilities in the Niger Delta Region forced insurers to return premiums to companies.



January 24, 2017 | 1:05 am
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