NEM Insurance; The Good, The Uncertain And The Possible

Friday, May 31, 2019    / 07:30PM / By TheAnalyst /Proshare Research

A growing number of investors and analyst are taking a keener look at Insurance companies as the apex regulatory body of the industry, National Insurance Commission (NAIC), announced a new capital base for different categories of insurance firms operating in Nigeria. The capital base for life insurance firms was moved from N2b to N8b; general insurance firms had their base increased from N3bn to N10bn, while composite insurers saw their capital base pushed from N10bn to N15bn.

 

The new equity base of insurers while likely to strengthen their underlying operational capacity may also lead to a flurry of mergers and acquisition in coming months.  Besides, in a slowly growing economy, one of the several industries most harshly affected by lower patronage has been insurance. Against this background a review of the performance of NEM Insurance has thrown up aspects of the business that remains resoundingly good, others that appear a bit hazy, and those that show promise if appropriate corporate actions come into play. 

 

Introduction

Data from the Nigerian Stock Exchange (NSE) show that there are 23 listed companies in the sub-sector- Insurance carriers, Brokers and services in the financial service sector of the listed companies in Nigeria. Of the listed companies;

• 3 (AFRINSURE, MBENEFIT and WAPIC) offer life assurance services;
• 13 (CHIPLC, GUINEAINS, LAWUNION, LINKASSURE, MBENEFIT, NEM, PRESTIGE, REGALINS, SOVRENINS, STACO, SUNUASSUR, UNIVINSURE, and WAPIC) offer non-life insurance services, and;
• 7 (AIICO, CORNERST, GOLDINSURE, LASACO, MANSARD, NIGERINS and STDINSURE) offer composite insurance services.

With a market capitalization of N12.46bn (as at 20th May, 2019), NEM Insurance PLC (NEM) contributes 0.11% to the entire market capitalization of the equities market. In sector, it is the 2nd most capitalized company after MANSARD (which has a market capitalization of N18.90bn as at 20th May, 2019).

 

Financials

From a growth rate of 9.35% in Q1 2018, NEM’s earnings has more than doubled in Q1 2019 as the company reported a growth of 19.87% in its Gross Premium Written from N5.67bn in Q1 2018 to N6.80bn in Q1 2019. Overall the quarters analyzed NEM has been able to maintain a steady growth of Gross Premium Written. However, it is noteworthy that the reverse appears to be the case when it comes to profit after tax (PAT).

 

Table 1- Change in NEM Gross Premium and PAT from Q1 2018 to Q1 2019

Quarter	Gross Premium N'm	% chg in Gross Premium	PAT N'm	% chg in PAT
Q1 2018	5673	9.35%	751.97	24.38%
Q2 2018	9156	12.80%	1508	20.77%
Q3 2018	12561	13.55%	1601	-5.38%
Q4 2018	15049	12.17%	2047	-26.23%
Q1 2019	6800	19.87%	849.57	12.98%
Source: NEM Annual Reports and Accounts

 

The table above shows that the growth rate of PAT has decreased by 50% from 24.38% growth recorded in Q1 2018 to 12.98% growth recorded in Q1 2019. Furthermore, despite growth in Gross Premium Written, PAT in Q3 and Q4 declined by 5.38% and 26.23% respectively when compared with the PAT in the contemporary period of Q3 and Q4 of 2017. The decrease in PAT was as a result of an increase in claims expenses and unearned premium over the periods. 

 

Chart 1- NEM Gross Premium Written from Q1 2018 to Q1 2019

Source: Proshare Research

 

Chart 2- NEM PAT from Q1 2018 to Q1 2019

Source: Proshare Research

 

For insurance companies, the ability to settle claims promptly and conveniently is a vital component of the business. So far NEM appears to have coped fairly well in this regards, as growth in its claims liabilities has been supported by an increase in reserves and an improvement in invested securities, providing the liquidity support to bridge the claims gap with appropriate liquid assets.

Over the five quarters under review between 2018 and 2019, NEM has been able to record positive growth rates in invested assets and claims. In 2018, the insurer was able to grow invested assets to N22.49bn, which represented an 82.84% increase compared to Q4 2017. During this period, claims on the company increased by 9.33% from N6.52bn in Q4 2017 to N7.13bn in Q4 2018.

 

Table 2- Change in NEM Invested Assets and Claims from Q1 2018 to Q1 2019

Quarter	Invested Assets N'm	% chg in Invested Assets	Claims N'm	% chg in Claims
Q1 2018	15772.95	28.23%	7094	8.82%
Q2 2018	12985.56	5.57%	7002	7.41%
Q3 2018	13363.56	8.64%	7068	8.42%
Q4 2018	22490.95	82.84%	7127	9.33%
Q1 2019	17500.95	10.96%	7717	8.28%
Source: NEM Annual Reports and Accounts

 

NB: The Invested assets considered are the assets that are invested in the money market and easily converted to cash. These constitute financial assets, investment properties, reinsurance assets and cash and cash equivalents. The claims constitute the insurance contract liability of the company.

 

Chart 3- NEM Invested Assets from Q1 2018 to Q1 2019

Source: Proshare Research

Chart 4- Claims on NEM from Q1 2018 to Q1 2019

Source: Proshare Research

 

Share Price Movement

NEM started 2018 with a share price of N1.56 and closed Q1 2018 with a share price of 2.70 representing the highest share price of the company in the first quarter. As at the end of the trading day in 2018, the share price of the company was at N2.62, which represents a 67.95% Y-o-Y growth rate in the company’s shares. In 2019, NEM opened the year with a share price of N2.70 and closed Q1 2019 at a share price of N2.22 which represents a 17.78% decline during Q1 2019. Over the last seven trading days, the company’s share price increased marginally by 7.27% from N2.20 to N2.36 as at 22nd May 2019.

Visit NEM Insurance Plc IR Page in Proshare MARKETS

 

Graph – Year to Date Share Price Movement

 

Peer Review – Financials, Key Ratios and Share Price Performance

NEM Financials Compared with Peers

Table 3- Peer Analysis on Invested Assets

Companies	Y-o-Y PEER ANALYSIS (Invested Assets)
	Q1 2019 N’m	Q1 2018 N’m	% Chg in Invested Assets
AIICO	115825	99806	16.05%
GUINEAINS	3159	2768	14.13%
CORNERST	18758	16569	13.21%
LAWUNION	10574	9442	11.99%
NEM	17501	15773	10.96%
REGALINS	7926	7228	9.66%
CHIPLC	9188	8757	4.92%
MANSARD	66762	63967	4.37%
MBENEFIT	40091	38561	3.97%
STDINSURE	6272	6044	3.77%
LINKASSURE	22267	21687	2.67%
SUNUASSUR	9296	9144	1.66%
NIGERINS	9450	9535	-0.89%
STACO	6131	6281	-2.39%
UNIVINSURE	5315	5533	-3.94%
AFRINSURE	37359	39609	-5.68%
WAPIC	13780	14677	-6.11%
PRESTIGE	10039	10885	-7.77%
SOVRENINS	7428	8243	-9.89%
LASACO	13971	16354	-14.57%
GOLDINSURE	255	329	-22.49%
Source: Companies Reports, Proshare Research

 

Of the 21 insurance companies analyzed, the table shows that 12 recorded a Y-o-Y increase in invested assets. When compared with peers, NEM fairs well as it ranks 5th in terms of growth in invested assets as it recorded a 10.96% increase in invested assets Y-o-Y. Invested assets increased from N15.77bn in Q1 2018 to N17.50bn in Q1 2019.

Chart 5- Peer Analysis on Y-o-Y % Change in Invested Assets

Source: Proshare Research

 

AIICO tops in the category both in terms of the amount invested and in the growth of invested assets as the company’s invested assets grew from N99.81bn in Q1 2018 to N115.83bn in Q1 2019. However, GOLDINSURE recorded the least growth in invested assets with a Y-o-Y decline of 22.49%.

Chart 6- Q1 2019 & Q1 2018 Invested Assets of NEM and Peers

Source: Proshare Research

 

Table 4- Peer Analysis on Reserves

Companies	Y-o-Y PEER ANALYSIS (Reserve)
	Q1 2019 N’m	Q1 2018 N’m	% Chg in Reserve
AFRINSURE	-30983	-26368	17.50%
CORNERST	2311	1999	15.61%
AIICO	8255	7286	13.30%
LINKASSURE	4514	4075	10.77%
WAPIC	5207	4716	10.41%
NEM	9174	8324	10.21%
CHIPLC	2122	1928	10.06%
LASACO	2787	2539	9.77%
MANSARD	10284	9397	9.44%
MBENEFIT	3030	2802	8.14%
SUNUASSUR	-4305	-4082	5.46%
SOVRENINS	2774	2648	4.76%
STDINSURE	1673	1611	3.85%
PRESTIGE	2071	2012	2.93%
STACO	-3097	-3018	2.62%
REGALINS	1983	1936	2.43%
LAWUNION	2277	2236	1.83%
NIGERINS	1257	1241	1.29%
GOLDINSURE	-9604	-9826	-2.26%
GUINEAINS	-396	-467	-15.20%
UNIVINSURE	-1661	-2647	-37.25%
Source: Companies Reports, Proshare Research

 

In terms of reserve, most insurance companies experienced an increased growth Y-o-Y as only 3 of the companies analyzed experienced a decline. The growth of NEM’s reserve  Y-o-Y above its peers indicates underlying operating strength; NEM’s reserve growth is 6th with a 10.21% increase from N8.32bn in Q1 2018 to N9.17bn in Q1 2019. It is important to note that GOLDINSURE recorded a decline in reserves just as the growth of its invested assets equally fell Y-o-Y. UNIVINSURE tops the list of companies which saw a fall in reserves, followed by GUINEAINS.

 

Chart 7- Q1 2019 & Q1 2018 Reserve of NEM and Peers

Source: Proshare Research

 

As can be seen from the chart above, AFRINSURE has a negative reserve and this has increased Y-o-Y by 17.50%. It is the worst performing insurer in terms of reserves as its negative reserve is the highest of the companies (SUNUASSUR, STACO, GOLDINSURE, GUINEAINS and UNIVINSURE) which declared negative reserves over the period.

Chart 8- Peer Analysis on Y-o-Y % Change in Reserve

Source: Proshare Research

 

Table 5- Peer Analysis on Claims

Companies	Y-o-Y PEER ANALYSIS (Claims)
	Q1 2019 N’m	Q1 2018 N’m	% Chg in Claims
LINKASSURE	4458	2828	57.64%
LAWUNION	4434	3523	25.86%
LASACO	6438	5188	24.09%
MANSARD	27228	22539	20.80%
UNIVINSURE	858	713	20.34%
MBENEFIT	12321	10299	19.63%
CORNERST	12659	10653	18.83%
AIICO	75858	65541	15.74%
NEM	7717	7094	8.78%
STDINSURE	4972	4637	7.22%
REGALINS	3245	3103	4.58%
CHIPLC	3973	3804	4.44%
GOLDINSURE	4557	4430	2.87%
WAPIC	9891	9621	2.81%
AFRINSURE	37228	36278	2.62%
SUNUASSUR	3985	3929	1.43%
SOVRENINS	3102	3089	0.42%
NIGERINS	10063	10023	0.40%
GUINEAINS	471	556	-15.29%
STACO	2888	3563	-18.94%
PRESTIGE	2751	3605	-23.69%
Source: Companies Reports, Proshare Research

 

The table on the claims of insurance companies follows the same pattern as that of reserves. The table shows that the majority of insurance companies experienced an increase in claims against them. The data showed that the claims on NEM increased over the period by 8.78% while LINKASSURE topped the list with 57.64% growth in claims and PRESTIGE topped the list of companies with a decline in claims over the period as claims fell by 23.69%.

Chart 9- Q1 2019 & Q1 2018 Claims on NEM and Peers

Source: Proshare Research

 

Of all the companies compared, AIICO has the highest claims on it as the total claims on it during Q1 2019 was N75.86bn, which represents a 15.74% increase from N65.54bn recorded in Q1 2018. GUINEAINS recorded the lowest amount of claims on it.

 

Chart 10- Peer Analysis on Y-o-Y % Change in Claims

Source: Proshare Research

 

Table 6- Peer Analysis on Gross Premium

Companies	Y-o-Y PEER ANALYSIS (Gross Premium)
	Q1 2019 N’m	Q1 2018 N’m	% Chg in Gross Premium
UNIVINSURE	809	535	51.21%
PRESTIGE	1989	1354	46.90%
LASACO	7797	5778	34.94%
AIICO	14324	10752	33.22%
CORNERST	9604	7367	30.37%
LAWUNION	2241	1801	24.43%
GUINEAINS	939	759	23.72%
MANSARD	17423	14168	22.97%
CHIPLC	2572	2131	20.69%
NEM	6800	5673	19.87%
STACO	4782	4368	9.48%
WAPIC	4813	4466	7.77%
MBENEFIT	11891	11053	7.58%
REGALINS	2030	1890	7.41%
GOLDINSURE	845	813	3.94%
LINKASSURE	2216	2172	2.03%
STDINSURE	3420	3917	-12.69%
SOVRENINS	4210	5207	-19.15%
AFRINSURE	4037	5105	-20.92%
SUNUASSUR	851	1203	-29.26%
NIGERINS	3042	7136	-57.37%
Source: Companies Reports, Proshare Research

 

Compared to peers, NEM has been a key player in terms of growth in premium written in the sector. The table above shows that NEM recorded a Y-o-Y increase of 19.87% from N5.67bn recorded in Q1 2018 to N6.80bn recorded in Q1 2019. UNIVINSURE tops this list with a growth in premium written of 51.21% Y-o-Y while NIGERINS declared the highest decline in gross premium written over the period under review.

Chart 11- Peer Analysis on Y-o-Y % Change in Gross Premium

Source: Proshare Research

 

Table 6- Peer Analysis on PAT

Companies	Y-o-Y PEER ANALYSIS (PAT)
	Q1 2019	Q1 2018	% Chg in PAT
AFRINSURE	-4708	-2187	115.27%
WAPIC	490	233	110.30%
LASACO	542	401	35.16%
AIICO	1027	806	27.42%
PRESTIGE	355	280	26.79%
LINKASSURE	439	375	17.07%
NEM	850	752	13.03%
MANSARD	890	822	8.27%
CHIPLC	199	210	-5.24%
REGALINS	214	240	-10.83%
MBENEFIT	666	790	-15.70%
SUNUASSUR	-222	-296	-25.00%
STDINSURE	314	435	-27.82%
GOLDINSURE	-149	-243	-38.68%
LAWUNION	65	113	-42.48%
SOVRENINS	309	560	-44.82%
NIGERINS	16	364	-95.60%
STACO	-11	-1198	-99.08%
UNIVINSURE	0.844	-307	-100.27%
CORNERST	659	-2114	-131.17%
GUINEAINS	-134	70	-291.43%
Source: Companies Reports, Proshare Research

 

As at the end of Q1 2019, only 8 of the companies declared growth in their PAT of which NEM is among. NEM was able to grow its PAT by 13.03%. The PAT grew from N752mln recorded in Q1 2018 to N850mln in Q1 2019. This emanated from an increase in the company’s gross premium and investment income as the investment income increased from N136.05mln in Q1 2018 to N236.63mln in Q1 2019.

Chart 12- Peer Analysis on Y-o-Y % Change in PAT

Source: Proshare Research

Among the peers, AFRINSURE recorded the highest growth in PAT, followed by WAPIC and LASACO to complete the top 3. GUINEAINS, CORNERST and UNIVINSURE tops the list of companies with the highest decline in PAT.

NEM Financials Compared with Peers

Table 7- Peer Analysis on Liquidity Ratio

Companies	Y-o-Y PEER ANALYSIS (Liquidity Ratio)
	Q1 2019 N’m	Q1 2018 N’m	% Chg in Liquidity Ratio
GUINEAINS	6.7070	4.9784	34.72%
PRESTIGE	3.6492	3.0194	20.86%
STACO	2.1229	1.7628	20.43%
REGALINS	2.4425	2.3294	4.86%
NEM	2.2679	2.2234	2.00%
CHIPLC	2.3126	2.3021	0.46%
AIICO	1.5269	1.5228	0.27%
SUNUASSUR	2.3327	2.3273	0.23%
NIGERINS	0.9391	0.9513	-1.29%
STDINSURE	1.2615	1.3034	-3.22%
CORNERST	1.4818	1.5553	-4.73%
AFRINSURE	1.0035	1.0918	-8.09%
WAPIC	1.3932	1.5255	-8.67%
SOVRENINS	2.3946	2.6685	-10.26%
LAWUNION	2.3848	2.6801	-11.02%
MBENEFIT	3.2539	3.7441	-13.09%
MANSARD	2.4520	2.8381	-13.60%
UNIVINSURE	6.1946	7.7602	-20.17%
GOLDINSURE	0.0560	0.0743	-24.65%
LASACO	2.1701	3.1523	-31.16%
LINKASSURE	4.9948	7.6687	-34.87%
Source: Companies Reports, Proshare Research

 

The liquidity ratio of the insurance companies is a measure of the ratio of their invested assets over the claims on them. The higher the liquidity ratio, the more liquid they are. GUINEAINS recorded the highest liquidity ratio in Q1 2019 and it also topped other insurance companies in terms of growth in the ratio Y-o-Y. NEM is also in the green in this metric as it recorded a marginal increase of 2.0% in its liquidity ratio from 2.22 in Q1 2018 to 2.27 in Q1 2019.  However, LINKASSURE recorded the highest decline in liquidity ratio as the ratio decreased from 7.67 in Q1 2018 to 4.99 in Q1 2019.

Chart 13- Peer Analysis on Y-o-Y % Change in Liquidity Ratio

Source: Proshare Research

 

Table 8- Peer Analysis on Loss Ratio

Companies	Y-o-Y PEER ANALYSIS (Loss Ratio)
	Q1 2019 N’m	Q1 2018 N’m	% Chg in Loss Ratio
NIGERINS	3.30802	1.40457	135.52%
LINKASSURE	2.01173	1.30203	54.51%
SUNUASSUR	4.68273	3.266	43.38%
AFRINSURE	9.2217	7.10637	29.77%
SOVRENINS	0.73682	0.59324	24.20%
STDINSURE	1.4538	1.18381	22.81%
MBENEFIT	1.03616	0.93178	11.20%
LAWUNION	1.97858	1.95614	1.15%
GOLDINSURE	5.3929	5.44895	-1.03%
MANSARD	1.56276	1.59084	-1.76%
REGALINS	1.59852	1.6418	-2.64%
WAPIC	2.05506	2.15428	-4.61%
LASACO	0.8257	0.89789	-8.04%
CORNERST	1.3181	1.44604	-8.85%
NEM	1.13485	1.25048	-9.25%
AIICO	5.29587	6.0957	-13.12%
CHIPLC	1.54471	1.78508	-13.47%
UNIVINSURE	1.06057	1.33271	-20.42%
STACO	0.60393	0.81571	-25.96%
GUINEAINS	0.5016	0.73254	-31.53%
PRESTIGE	1.38311	2.66248	-48.05%
Source: Companies Reports, Proshare Research

 

The loss ratio measures the ratio of claims over the gross premium of the insurance companies. The claims represent the losses while gross premium represents the gains. Therefore, in general term, a loss ratio is the ratio of losses to gains. Therefore, a high loss ratio may indicate that the insurance company will not be able to meet its financial obligations and the lower the loss ratio, the better.

Chart 14- Peer Analysis on Y-o-Y % Change in Loss Ratio

Source: Proshare Research

 

In Q1 2019, NEM was able to reduce its loss ratio by 9.25% thereby making it come 7th in the companies that have the highest decline in loss ratio. The company’s loss ratio decreased from 1.25 in Q1 2018 to 1.13 in Q1 2019. NIGERINS topped the list as the company with the highest loss ratio as it recorded a spike of 135.52% growth in loss ratio Y-o-Y. PRESTIGE came top among the companies with a decline in loss ratio as the company was able to reduce its loss ratio by 48.05% over the period.

 

Table 9: Peer Analysis on Share Price Performance

Except for NEM, MANSARD and AIICO, all the other insurance companies listed on the NSE are traded below 50 kobo as at 22nd May, 2019. NEM has the highest share price of N2.36. However, this price represents a decline of 1.26% from N2.39, with which it started the year. Based on YTD performance, only 3 of the insurance companies have experienced YTD growth as at 22nd May, 2019. SOVRENINS records the highest gain as its share price increased by 15%. LASACO and AIICO followed with YTD share price increase of 6.90% and 3.13% respectively. While STACO last traded on 18th September, 2018, there was no trading in the shares of GOLDINSURE in 2018 due to its suspension by the NSE for late filing of its financial statements.

Chart 15- Peer Analysis on YTD Share Price Performance

Source: Proshare Research

Among those that have a negative share price growth YTD, NEM is the lowest as it recorded 1.26% decline as at 22nd May, 2019. In Q1 2019, it also recorded decline in share price movement as it ended the Q1 at N2.22 which represents 7.11% decline from N2.39 which it used in starting the year. However, in Q1 2018, NEM topped the gainers list among its peers as its share price grew by 51.93% from N1.81 at the beginning of the year to N2.75 as at 31st March, 2018.

Conclusion

In 2018, NEM was among the top 3 best-performing stocks and the best performing stock in its sector on the bourse. NEM has the highest share price in its sector as of 22nd May, 2019.

Comparing the company’s financials with its peers, NEM has fared better in all metrics as it has recorded moderate growth between Q1 2018 and Q1 2019. However, its share price YTD has declined by 1.26%, a situation that bucks the company’s financial performance.

 

Related News

1.      NEM Declares N849.56m PAT in Q1 2019 Result,(SP:N2.32k)

2.      NEM Declares N2.05bn PAT in 2018 Audited Results,(SP:N2.01k)

3.      NEM Announces the Commencement of the Company’s Closed Period from February 18, 2019

4.      NEM Insurance Announces Investment By AFIG Funds

5.      VFD Group Sells Stake in NEM Insurance

6.      CCNN, CILEASING and NEM Top As Best Performing Stocks YTD

7.       NEM Declares N1.60bn PAT in Q3 2018 Results (SP:N2.62k)

8.       NEM Insurance Plc 48th AGM And Associated Governance Issues

9.       SEC Invalidates NEM Insurance Plc’s 48th AGM and Resolutions; Orders Firm to Reconvene Proper AGM

10.  ALERT: Again, NEM Trades 52.18% of Total Market Volume Today

11.  ALERT: NEM Trades 34.86% of Total Market Volume Today

12.  NEM Declares N1.51bn PAT in Q2 2018 Results,(SP:N3.0k)

13.  NEM Declares N751.97m PAT in Q1 2018 Result,(SP:N2.80k)

 

 

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