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Published On: Mon, Feb 19th, 2018

Massive sell-off hits insurance sector




As the Nigerian Stock Exchange (NSE) changes its rules about the maximum price that stocks could dip below their nominal book values of 50 kobo per share, Insurance sector stocks since last week have taken a free fall. David Adonrin, managing director, Highcap Securities Ltd has been holding Royal Exchange Insurance stocks for more than three years without finding investors willing to buy them at its N0.50 par value. But when The NSE introduced the new par value rules that allow  stocks to decline to as low as N0.10 on January 29, 2018, it took him less than an hour to sell the Royal Exchange Insurance stocks when it dropped to N0.48.

Other investors like Adonrin have latched on to the new par value rule to sell-off a trailer load of insurance sector stocks in their portfolios, causing the sector to decline by -1.65 per cent in less than three weeks. 46 per cent of the listed insurance companies currently trade below their former N0.50 par value with Consolidated Hallmark Insurance being the worst hit, losing -46 per cent of its value year-on-year to close at N0.27 on Friday. Only Japaul (N0.36); FTN Cocoa Processors (N0.44); First Aluminum Nigeria (N0.37); Chams (N0.48) and Multiverse (N0.35) were the companies outside the insurance sector that fell below N0.50.

The insurance sector was down -0.45 per cent on Friday to close the week at 154.24 point with Linkage Assurance topping the volume chart, selling 300.77 million of its share worth N246.80 million. The sector declined -2.66 per cent last week. However, it has grown 10.67 per cent year-to-date, trailing the performance of the equity market, which appreciated 11.40 per cent year-to-date.

“A lot of the insurance companies lack the fundamentals to trade at N0.50 per value that is why we are seeing  investors pricing them down now,” explained Akintoye Ayorinde, analyst, Research and Securities, Afrinvest (W/A) Ltd. He maintained that the Federal Government would need to step in to help the insurance sector by enforcing compulsory insurance policies.

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The law of demand and supply was taking its toll on the insurance sector since the per value was review downward, posited Adonrin. “There many people willing to sell; while there few who are ready to buy that is what is playing out. This would continue until equilibrium price is achieved,” the Highcap Securities bossed further elaborated.

“Those with good fundamentals have appreciated while those with poor fundamentals have dropped further,” noted Johnson Chukwu, managing director, Cowry Asset Management Company Ltd. But he argued that the industry has not performed badly year-to-date, having grown 10.67 per cent during this period.

NEM Insurance has brazed the trail in the industry in the last one year as its stock price has 140.74 per cent y-o-y to N1.95 on Friday. It was followed by Mansard Insurance (N2.65) and Continental Reinsurance ((N1.48), which appreciated 76.67 per cent and 40.95 per cent y-o-y respectively.

“With the way the economy is structured, people are not ready for insurance. Even the compulsory insurance policies are not being enforced. People look at the sector as downtrodden,” claimed Olusola Senbanjo, managing director, Mc Alfa Global Insurance Brokers Ltd. He opined that the insurance sector is not being harnessed a major driver of the economy, urging other states to take a cue from Lagos State which has resolved to insurance the lives of policemen working in the state.

He added that efforts are being made to revamp the industry as NAICOM has been ensuring sanity in the sector. “We are expecting the assistance of the Federal government in driving the compulsory insurance,” the insurance broker submitted.

After slumping for eight consecutive days, the equity market rallied three days in a row to close last week appreciating 0.08 per cent to 42,638.83 points, on the back on gains recorded in medium and large capitalized stocks. Nestle led the nine gainers who pulled the market up on Friday, rising N55.00 or 4.09 per cent to close N1, 400.00. Nascon (N1.00) and Transcohot (N0.35) were part of the top three advancers for day, increasing 5 per cent and 4.86 per cent respectively.

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On the other hand, CAP was top among the 30 losers for the day, dropping -4.60 per cent or -N1.70 to berth at N35.2. Nigerian Breweries (N131.00) also shed -0.30 per cent or -N0.40, while Access Bank (N12.60); ETI (N19.75) and UBA (N12.15) were the other top losers, down by -0.30 per cent, -2.33 per cent, -1.25 per cent and -1.62 per cent.

The market capitalization advanced 0.08 per cent to N15.30 trillion as the 815,854,788 stocks traded in 4,808 deals amounting N8.06 billion.

Investors traded a total of 2.940 billion shares stocks worth N27.924 billion in 28,570 last week, though this was -34 per cent lesser  than 4.426 billion equities valued at N24.236 billion that exchanged hands in 29,573 deals the previous week.

“The Financial Services Industry (measured by volume) led the activity chart with 2.174 billion shares valued at N17.033 billion traded in 19,013 deals; thus contributing 73.96% and 61.00% to the total equity turnover volume and value respectively. The Services Industry followed with 232.482 million shares worth N216.990 million in 734 deals. The third place was occupied by Conglomerates Industry with a turnover of 170.422 million shares worth N499.400 million in 1,578 deals,” the exchanged stated in its weekly report.

The Nigerian capital market’s 11.40 per cent year-to-date return makes it is the best performed exchange during this period globally and only second to the Mongolian exchange, appreciating 79.92 per cent y-0-y. It was ranked the 11th best performed market in 2017 after posting 42 per cent return last year.

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