The Nigeria Stock Exchange (NSE) Insurance Index, which tracks insurance stocks, recorded the highest gain of 29.77 percent in January 2021 as insurers rallied on the back of suspension of the insurance industry recapitalisation exercise.
The federal government had in December 2020, through the National Insurance Commission (NAICOM), suspended the insurance industry recapitalisation exercise following a court order mandating the regulatory body to do so.
However, Insurance stock capitalisation on the Nigerian Stock Exchange, which comprises insurance companies, gained N39.997billion from N188.120billion on December 31, 2020 to N148.123billion as at January 29, 2021.
For the reviewed period, the insurance sector was best-performing in the domestic equities market; with the NSE Insurance Index gaining a total of 29.77 percent to close at 245.91 basis points, driven by expected mergers and acquisitions of smaller insurance companies by big names in the sector and banks currently seeking approval to adopt the holding company structure that may acquire some underwriting houses.
Out of 23 stocks listed in the index, 15 posted gains during the period. Linkage Assurance posted a month gain if 73.08 percent. Mutual Benefits Assurance, Regency Alliance Insurance, Royal Exchange, Consolidated Hallmark Insurance, NEM I insurance, Coronation Insurance among others rose by 59.26 percent, 54.55 percent, 53.85 percent, 37.50 percent, 35.20 percent and 35 percent respectively.
Apart from being the best-performing index on the exchange, it is arguably the best asset class to invest in Nigeria right now. At 29.77 percent, the index beat the inflation rate which topped 15 percent in December, and was higher than 5.32 percent NSE All-Share index posted at the end of the first trading month of the year.
Capital market analysts said that the driver is likely the recapitalisation efforts that have dominated the sector since 2019. NAICOM had earlier stipulated 31st December 2020 as the deadline for underwriters to have raised 50 percent of the new capital, while the remaining 50 percent would be expected by September 2021.
The recapitalisation rules require life insurance firms to meet a minimum paid-up capital of N8billion, up from N2billion previously.
In the same vein, general insurance companies are required to raise their minimum paid-up capital to N10billion from N3billion previously.
The regulatory capital for composite insurance firm was raised to N18billion from N5billion previously, while reinsurance businesses are now required to have a minimum capital of N20billion from a previous N10billion.
However, the ravaging COVID-19 forced the regulator to move the deadline to September 2020 – but insurance firms were required to meet half the recapitalisation requirement by the end of December 2020.
Meanwhile, as insurance firms battled to raise capital, some Shareholders took the regulator to court and obtained a court order suspending the recapitalisation exercise.
According to reports, Justice C.J. Aneke of the Federal High Court issued an order suspending the recapitalisation of the back of an ex-parte application applied for by the Incorporated Trustees of the Pragmatic Shareholders’ Association of Nigeria.
In late 2020, the House of Representative also passed a resolution demanding a suspension of the recapitalisation exercise.