Insurance Sector’s Investment Portfolio Suffers Low Performance

The 2018 Nigerian Insurance Industry report by Agusto & Co. has revealed poor performance of the investment portfolio in the sector.

The 206-page report which also ranked firms in the industry across various financial indicators, also highlighted major challenges contributing to the industry’s low performance, particularly its investment portfolio management which it stressed requires improvement.

Agusto & Co estimated that the insurance industry’s investment portfolio grew by eight per cent to N762 billion in 2017 (approximately 75% of total assets).

A breakdown of the industry’s investment portfolio showed a 44 per cent allocation to government securities, 18 per cent in bank placements & deposits, 16 per cent in real estate, seven per cent in subsidiaries and six per cent each in quoted and unquoted investments.

“Despite growth in the industry’s investment portfolio, a rise in yields and significant investments in treasury bills, the average returns on investments remained below 10 per cent,” it stated.

The report cited inefficient investment management strategies as the main factor that resulted in the low returns for the industry.

With an average investment yield of about nine per cent in 2017, it stated that the real returns was negative considering that inflation closed at 15.37 per cent same year.

“In addition, the average yield of 364 days treasury certificates of about 13per cent in 2017 was significantly higher than the industry’s average returns on its investment portfolio.

“Investment manager’s inputs are only made after the fact. Some investment officers who carry out daily investment operations are not adequately equipped for the positions they hold and are not trained in the management of investment securities in the capital and money markets.

“In their opinion, the recruitment process for key positions such as investment manager in the Insurance industry should be improved while regular trainings need to be held for staff,” it added.

Furthermore, the report noted that limited investment options also plague the investment performance of the sector.

Although this is an external factor that underwriters have little or no control over, Agusto & Co expressed belief that the Nigerian financial market is nascent with limited investment channels.

“This is obvious when investment assets available to South African insurance companies are compared with those accessible by Nigerian underwriters.

“Apart from the traditional money market and government securities, real estate investments and equities in quoted and unquoted companies, South African underwriters invest in other financial assets like collaterised securities and equity linked notes as well as derivatives such as exchange traded and over the counter (OTC) futures and interest rate swaps.