The decision by the National Insurance Commission (NAICOM) to shift the recapitalisation deadline from January 1, 2019, to October 2018, is eroding the value of insurance stocks, a development capital market said can scare away more investors.
According to them, NAICOM ought to be developing and protecting the insurance sector, even as they opposed the way the regulator is going about the recapitalisation exercise.
NAICOM had announced the tier-based solvency capital for the industry where all the existing 57 insurance firms in the country be categorised as tier 1,2 or 3 companies respectively with an initial take-off date of January I, 2019. However, the insurance industry regulator last month announced a new date of October 1, 2018.
Despite calls by stakeholders for a review of that date, NAICOM has said there was not going back.
THISDAY checks showed that the position of the regulator is doing more harm to the value of insurance stocks as existing investors move to sell their shares, while new ones are not willing to invest in the sector.
As a result, the aggregate value of the sector on the Nigerian Stock Exchange (NSE) has declined by N15 billion between August 27 that NAICOM announced the new deadline and Monday.
Specifically, the market capitalisation of insurance sector dipped from N150 billion to N115 billion, indicating that the NAICOM pronouncement has eroded N15 billion from the value of investors.
Stock market operators said more value would be eroded if the regulator continued with its hardliner stance.
“What is happening in the insurance sector is quite unfortunate. While the recapitalisation policy has good intention and is capable of boosting the sector, the manner it is being implemented is highly discouraging and will send panic to all stakeholders. And this is not good for the sector and economy generally,” a stockbroker said.
Analysts at CSL Stockbrokers Limited had warned that, although the recapitalisation of the insurance industry is long overdue considering the deterioration in the capital of underwriters since the last recapitalisation exercise was carried out in February 2007, it is practically impossible for underwriters to meet up with the latest deadline in view of the duration involved in raising capital amidst the current negative sentiment from investors’ in the equities market.
“Furthermore, we believe the recapitalisation exercise, if not well managed, could potentially affect investors confidence and sentiment in the insurance sector, leading to a knee-jerk sell off on insurance stocks,” they stated.
They also noted that given the fragile recovery of the economy, there was need to avert the negative consequences associated with the potential collapse of insurance companies who are unable to recapitalise.
They insisted that there was the need for NAICOM to liaise with insurance companies to ensure a smooth, hitch-free recapitalisation exercise that would reposition the industry for better growth.
The Chairman, Mutual Benefit Assurance Plc, Mr. Akin Ogunbiyi, had also highlighted the dangers of the tier-based capital and regulator’s action saying it could be counter-productive, anti- growth and disruptive.
Ogunbiyi said the exercise might usher in era of delisting of insurance stocks from the Nigerian stock market.
He also said the tier-based recapitalisation could lead to hostile take-overs of insurance firms for peanuts especially by foreign investors with short term gains as focus.