The value of selling off your investment in insurance

By Ekerete Olawoye Gam-Ikon, MNIM, CPP

The season is dire but real investors are digging deeper after the year has proven to be worse than the years of the global financial crisis, even as we foresee a longer period of its negative effects.

The global economy has taken a dive and respective national economies, whether advanced or developing, are groaning, yet conversations on recovery have been more focused on sectors like agriculture, small business, healthcare, logistics, security, financial technology and infrastructural development.

Monitoring the developing stories with an insurance perspective ordinarily reveals opportunities in the focused sectors mentioned, however the lethal blow dealt the insurance sector in Nigeria by the low economic activities, resulting from COVID-19 pandemic and claims payable to victims of the #EndSARS protests, coupled with the regulatory-induced recapitalization, seem too overwhelming for stakeholders in the insurance industry in Nigeria.

Regulators are unlikely to respond positively to the pleas of insurance and reinsurance companies with respect to the first recapitalization deadline of December 31, 2020 in view of the many occasions that the deadline has been shifted lest the sector is considered as unserious, especially by incoming investors.

While the operators are somewhat weakened by these events, shareholders and policyholders, especially new ones, are at crossroads awaiting the announcement by the regulator. Some, though, have considered that there is no point waiting to become absolute losers as they can sell off now that they still have a chance.

Investments in the insurance industry in Nigeria, whether through acquisition of shares on the floor of the Stock Exchange or via private placements by Private Equity Funds, have been hugely challenged as none have been reported to have attained their milestones within the set duration.

Of the 23 quoted insurance companies, less than 10 have had their stocks continuously trading, and actively so, in the last 3 years. The import of this is that there are more opportunities for mergers and acquisitions in view of the recapitalization requirements and deadlines only if the current shareholders/investors are ready to do some trade-off, to sell today and re-purchase tomorrow.

We have seen this happen amongst a number of unquoted companies and they already seem better positioned to compete in an emergent market where customers are quite discerning as insurers enhance their abilities to respond promptly and appropriately when the need arises.

Recent examples of these actions are: FBN Insurance Limited/Sanlam, where First Bank of Nigeria Plc sold its stake to Sanlam; Verod Capital outrightly acquired Metropolitan Life Assurance (now Tangerine Life), ARM Life and lately Law Union & Rock Insurance Plc; and Allianz, the global insurance brand completed its take over of Ensure Insurance Company.

The decision to SELL or HOLD of course depends on several factors yet one critical factor that should not be allowed to rear its head at this time is the “My Company” mentality! We have seen a few great companies go into oblivion, at times like this, for this singular reason and the “owners” earned a place in the bad side of history. Personally, I recall Amicable Assurance Plc, which was the prime source of insurance for many Nigerians who wanted a wholly owned Nigerian brand, and it produced great insurance professionals. It went with the first real effort at recapitalizing the insurance industry in the 90s.

With the way the current recapitalization exercise is going, is it not certain that the stories of lost opportunities that we witnessed also in 2007, when a few insurance companies desperately wanted to be acquired by any other companies, might occur again this time? This can only be avoided if current shareholders and investors in insurance who are experiencing hard times can rather decide to sell.

Meanwhile, it is not going to get easier to own, operate and profit from an insurance business anymore, not just because of tighter regulation but also due to the increasing awareness and demand of customers (policyholders) for better experiences. After the first deadline and NAICOM announces the list of successfully recapitalized insurers and reinsurers, it will be reckoned by all that any of them is capable of meeting its financial obligations, so the pressure for prompt claims payment will continue.

The BUSINESS of insurance is expected to start well after the recapitalization and only those that understand it as a business will go further, hence my advice that you SELL if you are not able to fund the new engine required. This is what should drive the fundamentals for both existing and intending investors, as getting returns on their investments can no longer be left only to the managers.

If the year 2020 has taught us to maintain social distancing, we should use the lessons to distance ourselves from the things that bring us losses. One available strong option is foreign direct investments, which would give value to those that decide to sell and unlikely to remain long enough to debar local investors that might want to return. The call is yours to make.