Cornerstone Insurance Plc, Nigeria’s fifth-largest underwriter by market capitalization (N10.2 billion as of September 30, 2022), could experience a resumption of the dividend drought that has hampered its operations for five consecutive years, its results showed. 2022 half-year financials.
The 31-year-old insurance company declared no dividend from 2016 to 2020 after shareholders received a dividend of 2 kobo per share in 2015. The late trend was however interrupted in 2021 when the company declared a dividend. of 903.31 million, translating to 5 kobo per share, in 2021. However, the company’s directors enjoyed handsome compensation amid low profitability during the dividend drought.
According to the 2022 interim half-year financial results, Cornerstone Insurance posted an unimpressive performance in key financial metrics. This stands in contrast to most of its peers which recorded at least modest growth over the period. Among the top 10 companies in the industry ranked by market capitalization, Cornerstone Insurance was among the few to perform poorly during the period; it recorded a decline in growth of 48.8% year-on-year (on a profitability basis).
Unlike in HY 2021, when the company was able to increase its pre-tax profit to N833.78 million, it fell by 48.5% during HY 2022, posting N429.62 million. Similarly, profit after tax fell significantly. The company recorded a 48.6% fall in profit after tax to N408.36 million from N794.46 million at the start of the corresponding period.
The company’s gross revenue saw a marginal decline of 4.3% from N10.76 billion in the first half of 2021 to N10.3 billion in the baseline year. Gross premium earned, however, showed a positive result of N10.66 billion against N9.0 billion, an increase of 8.8%. Net underwriting income of N6 billion in the prior period fell 2% to N5.97 billion in the review space.
A review of the company’s first-half 2022 financial results further showed that its revenues were clearly hurt by significant operating costs that rose significantly during the period. Personnel expenditure increased by 42.3% to N1.33 billion from N932 million in the previous period, while staff training and development jumped to N54.28 million from N16.53 million or 228.4%. Wages have also moved north: 890 million naira from 769.45 million naira in the first half of 2021, an increase of 15.7%.
“Rising personnel costs and related issues suggest that the insurance company is proactively investing in its human capital as it is its most valuable asset. Employees should be trained as the foundation to ensure future growth and generate optimal returns for stakeholders,” said Ben Udoh, investment analyst.
Clearly, the impact of the high cost of diesel was manifested in the company’s repair, fuel and maintenance expenses which recorded an increase of 21.2 to 143.25 million naira from 118 .22 million naira during the corresponding period. The company also spent more on business travel which consumed N50.10 million of its revenue compared to N20.81 million in the first half of 2021. The asset base was also stretched; it fell 2% to 48.27 billion naira from 49.30 billion naira.
The cost of directors at Cornerstone Insurance Plc during the first half of 2022 was N37.19 million compared to N10.54 million in the previous period, representing a jump of 252.85%. This is more than three times the gross premium written during the period and nearly 10% of after-tax profit.
Independent Shareholders Association of Nigeria National Coordinator Anthony Omojola noted that the half-year result may not tell enough of the story of the company’s performance for the year. While the 48% drop in after-tax profits could be worrying, the investment advocacy leader argued that the marginal decline in assets should not be a cause for concern given the devaluation of the naira and of inflation. He believes that the third quarter would give a clearer picture of the company’s performance.
“The cost of administrators is about the same for both years. The 2% decline in assets is commendable given the value of the naira and the high cost of materials. Await Q3 results for further comment,” Omojola told THEWILL in a note.
According to Udoh, the declining numbers will most likely impact overall performance, making it difficult to avoid the impending dividend drought.
Udoh said the half-year results are indicative of the company’s annual performance for the next two quarters. According to him, given the depressed economy which does nothing to spare the insurance sector, the decline in the value of the naira and the rise in inflation, it is unlikely that Cornerstone Insurance will post any returns. impressive throughout the year.
“There is already a downward trend. Profits are low and operating expenses are rising. Companies are generally called into question. The insurance company’s half-year result shows that it won’t be better than 2021,” Udoh said by phone.
When contacted, Cornerstone Insurance’s head of marketing and corporate communications, Cordelia Ekeocha, confirmed receipt of the request but did not respond further at press time.
In August 2020, the supreme insurance regulator, the National Insurance Commission (NAICOM), rolled out a new capital base for insurance companies listed on the NGX Exchange. The announcement revealed that a total of N142.13 billion would be needed to meet the new minimum capital for the 24 of the 25 listed companies.
NAICOM, in a circular, specified the minimum paid-up share capital of all categories of insurers and insurance and reinsurance companies except Takaful operators and microinsurance companies. The minimum paid-up capital of life insurance companies was revised from N2 billion to N8 billion while that of general insurance companies was revised from N3 billion to N10 billion.
The paid-up capital requirement for composite companies has been revised from N5 billion to N10 billion. That of reinsurance companies was revised from 10 billion naira to 20 billion naira. NAICOM also barred regulated entities from borrowing money to meet requirements, a move that left companies with options to merge and acquire or raise capital through a rights issue. Available data then showed that Cornerstone Insurance would seek an additional N8.05 billion in capital to augment its existing N1.95 billion to meet the newly stipulated minimum paid-up capital.
Cornerstone Insurance Plc said on July 24, 2020 that its board had taken a decision on a plan to issue bonus shares to its shareholders as part of plans to fulfill its recapitalization mandate. In a notice sent to the NGX Exchange, the company said the free share resolution was one of many other resolutions that were passed at its board meeting on July 22, 2020. It said that the free shares would be issued in the proportion of seven new shares for thirty shares of fifty kobo each, already held by the shareholders.
The company’s market capitalization as of September 30, 2022, according to data from the Nigerian Stock Exchange (NGX), was N10.17 billion; its share price closed N0.56 during last Friday’s trading.