Analysis Of The Nigerian Insurance Sector
Vetiva Capital prepared a report on the Nigerian insurance sector and here are some of the highlights:
1. Increasing focus on developing the non-oil sector, combined with growth in key sectors such as Telecoms and Building Construction have boosted non-oil sector earnings and growth.
2. A look at the growth patterns and trend of the insurance industry in various developing markets (we examined Brazil, Russia, India, China and Kazakhstan) showed some underlying similarities; as well as other key factors, which have aided strong for the Insurance Sector in these countries.
3. The Nigerian Insurance Industry has evolved over the past two years following the announcement of new capitalization requirements for companies operating the sector. With the conclusion of the consolidation exercise, the number of players dropped from 103 to 49.
4. Activities in the sector have, however, noticeably increased; with enhanced public awareness of the sector and their operations, rapid expansion and strategic business acquisitions, improved visibility and strict supervisory regulation.
5. They examined 2 key pointers namely; (i) the transformation cycle for the banking sector following its recapitalization; and developmental trends of the insurance sector in other emerging markets. It is believed that in the short to medium term, the same pattern of profitability and growth, as experienced in the Insurance sector. Though most of them are trading at relatively high PEs now, they believe some select few, who will be able to implement an optimal insurance business model will in the very near future, start to post earnings that will justify these market valuations.
6. Vetiva also believes that in the longer term, an in-depth look at past and current trends in emerging/developing markets will provide a close enough road map for the Nigerian Insurance Sector, in the near to medium term. Some of the trends identified include the following: (i) similar capitalization evolution patterns; (ii) use of technology as a major means of increasing public access to insurance products; (iii) the eventual entry of foreign players into the market, barring any entry restrictions and (iv) life insurance having the higher proportion of total premiums.
7. This report takes an in-depth look at 15 insurance companies. There are quite a few other key players in the market, for whom we have not provided coverage in this report, due mostly to inaccessibility of adequate data on them. They are by no means of any less significance than those, which are covered herein.
8. As at august 2005, prior to the announcement of the recapitalization directives, there were 22 insurance companies with a market capitalization of N28.94 billion listed on the Nigerian Stock Exchange. Now there are 26 active companies with a market capitalization of N683.1 billion, a 2,260% growth over two and a half years, with quite a few still expected to be listed this year.
9. A quick ranking of the companies in the insurance sector report universe, based mainly on key operating ratios, rank Custodian & Allied, Crusader, Sovereign Trust and STACO as premium performers on a majority of the operating ratios.
10. The analysis considered company operating ratios (based on available data), cost trends, growth trends and resulting valuations. We, however, note that the analysis was based on 2006 audited results; which is currently the most recent information available for many insurance companies. We look forward excitedly to the release of their 2007 results, and an update to this report.
Tags: marketanalysis
Market Analysis, business | 
donne4real | June 11, 2008