Key Points
- CIS says recapitalisation should mark a new phase for insurance companies.
- Insurers are advised to pursue profitable business instead of rapid expansion.
- Investors should focus on financial performance and other fundamentals.
- Stronger balance sheets should support innovation and wider insurance coverage.
Main Story
The Chartered Institute of Stockbrokers (CIS) has urged insurance companies that recently completed recapitalisation to focus on building sustainable businesses rather than rushing to expand.
Dr Benneth Eze, Head of Research and Development at CIS, gave the advice in an interview with the News Agency of Nigeria (NAN) in Lagos.
Eze said the additional capital should be deployed carefully to protect shareholders’ funds and strengthen the long-term performance of the companies.
He said insurers needed to place greater emphasis on disciplined underwriting, efficient claims management, sound operations and returns that reflected the risks taken.
Rather than measuring success by the amount of business written, Eze said companies should concentrate on securing profitable business that could support sustainable growth.
He also urged boards and management teams to be transparent with shareholders about how the new funds were being invested and the returns expected from them.
According to him, investors should not assume that a successful recapitalisation automatically makes an insurance company a good investment.
He advised them to examine factors including earnings quality, return on equity, solvency, asset quality, liquidity, underwriting results, corporate governance, dividend sustainability and valuation.
Eze said insurance companies should also use the stronger capital base to improve their technology, workforce, data capabilities and distribution networks.
He noted that the real assessment of the recapitalisation would come from the companies’ financial performance over the next few reporting periods.
He said insurers would need to demonstrate that the new capital was translating into stronger underwriting results, sustainable profits, competitive returns and improved claims management.
Eze also encouraged companies to use their financial strength to develop insurance products that address the actual risks faced by households and businesses.
The Issues
The recapitalisation has strengthened insurers’ capital positions, but the next challenge is ensuring that the funds generate sustainable returns rather than simply supporting larger business volumes.
What’s Being Said
“My advice to recapitalised insurance firms would be simple: do not treat recapitalisation as the destination; treat it as the beginning of the next phase of the industry.” – Dr Benneth Eze, Head of Research and Development, CIS.
“Regulatory compliance is only the minimum standard.” – Dr Benneth Eze, Head of Research and Development, CIS.
What’s Next
Insurance companies are expected to demonstrate through future financial results whether the additional capital is improving profitability, underwriting performance, returns and claims outcomes.
Bottom Line
CIS says the true measure of recapitalisation will be whether insurers can convert stronger capital positions into profitable, well-managed businesses that deliver lasting value to shareholders and greater protection to customers.
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