For violating the post-listing requirement of the Nigerian Stock Exchange, five insurance firms have been fined N41.8m.
The affected companies are Lasaco Assurance Plc, Universal Insurance Plc, Royal Exchange Plc, Guinea Insurance Plc and Niger Insurance Plc.
The companies, according to the X-Compliance report of the NSE, were not able to file their audited financial statements as required under the rules of the nation’s bourse, between 2018/2019 and the first quarter of 2020 financial year.
Stock Exchange rule
By way of definition, X-Compliance report is a transparency initiative of the Nigerian capital market, designed to maintain market integrity and protect investors by providing compliance-related information on all listed companies.
However, companies that are listed on the exchange are required by law to adhere to high disclosure standards which are prescribed in appendix III of the listing rules. For instance, financial information which is periodic disclosure as well as ongoing material events should be released to the NSE in a timely manner, to enable it efficiently perform its functions of maintaining an orderly market.
A detailed analysis of the sanctions showed that Lasaco paid N1.4m for breaching the rules for not submitting its 2018 audited financials and that of first quarter of 2019.
Universal Insurance was sanctioned to the tune of N700,000 for failing to submit its Q1 2019 audited financial statement, while Royal Exchange was fined N8.9m.
Guinea Insurance paid N11m fine to the NSE for flouting its X-compliance rules of not submitting its 2019 audited financial statement and that of first quarter and second quarter 2019 and Niger Insurance sanctioned N24.8m for contravening its Q1 2019 financial statement, 2018 audited result, and that of Q2 2019, respectively.
Market observers, who spoke with Financial Street, queried the essence for penalties on struggling insurance firms that could not pay claims or dividends to its shareholders at the end of every financial year.
The Group Managing Director and Chief Executive Officer of Consolidated Hallmark Insurance Plc, Eddie Efekoha, said insurance industry might not pay claims for business interruption flowing directly from the outbreak of the coronavirus pandemic and or due to the absence of the cover.
However, he asserted that the sector remained poised to respond appropriately when business interruption occurs due to specified risks in policies like fire outbreak, etc.
He said, “It’s no longer a secret that the global economy as well as the local economy have been affected by this epidemic, because the world is now a global village.”
Efekoha added that companies were already closing down across Europe and Asia, noting that the drop in global crude oil price already has its implications on Nigeria’s 2020 budget.
The foreign loans meant to augment the budget, he said, might not be coming anytime soon, meaning that, the country will struggle to implement its budget, as the insurance industry is not isolated from it.
An economist, Adewale Ajibola, said there was no direct impact of the epidemic on the insurance industry recapitalisation, as most of the foreign direct investment deals in the sector must have been concluded by relevant parties before the virus outbreak.
Nevertheless, he felt the outbreak would be felt more by life insurance companies owing to huge claims emanating from death as well as flight cancellations.
A capital market operator, Jonah Okechukwu, said poor perception of insurance by Nigerians, religious and cultural beliefs were a big problem to the growth of the industry.
He explained that the major effect was the inability of policy holders to renew their insurance contracts and pay their premiums, and that poor purchasing power of the public directly affects insurance products sales as consumers always strike out insurance from their budget once there is a lack of funds to meet their needs.
Need for portfolio investment
Reacting, Chief Executive of the NSE, Oscar Onyema, advised that quoted companies should manage their indebtedness so that monies borrowed for the purpose of businesses can contribute to profitability in future.
Onyema explained that the negative performance of some companies is a reflection of the domestic economy and to some extent, international best practices.