Nigeria Insurance Stocks Gain Most in Almost 20 Years on New Law

Nigerian insurance stocks had their biggest weekly gain in almost two decades after a new law was passed requiring companies to raise fresh capital and making insurance for property and other assets mandatory.

A gauge for the sector on the Lagos-based Nigerian Exchange has risen 41% [last] week, according to data compiled by Bloomberg. That compares with a 3,1% rise in the broader all-share index and 2.2% for the MSCI Emerging Markets Europe, Middle East and Africa Index over the same period. (Editor’s note: This article was published by Bloomberg on Friday, Aug. 8).

The law, signed this week by Nigeria’s President Bola Tinubu, which also encourages digitization and the creation of dedicated policyholder protection funds, is expected to transform the insurance industry in Africa’s most populous country. Only 0.4% of Nigeria’s population have insurance, one of the lowest globally, according to a report published by Lagos-based asset management firm Afrinvest in July. That compares with 11.5% in South Africa, 3.9% in Morocco and 2.4% in Kenya.

“The insurance stocks have been gaining this week and the major driver is the Nigeria insurance reform act that was signed by the president,” said Victory George, equity analyst at Meristem Securities Ltd. “With the reforms and the act, insurance penetration will rise, strategic and foreign investors will be coming to the sector as they aim to meet new capital requirements” said George, who has a buy recommendation on several top names in the sector including Custodian and Allied Insurance Plc, NEM Insurance Plc, Cornerstone Insurance Plc and AIICO Insurance Plc. (Editor’s note: Victory George was quoted last week).

The legislation is the latest in a series of reforms that Tinubu has initiated since becoming president in May 2023 to accelerate the economy’s march toward $1 trillion. Others include removing costly fuel subsidies, allowing the naira to trade more freely against the dollar, asking Nigerian banks to more than triple their capital and overhauling the nation’s tax laws.

Insurance stocks are up 156% since December when the Nigerian senate first approved the statute. The lower chamber gave its approval in March and the president this month.

Equities in the sector are currently trading at a record high and have outpaced the 42% return made by the broader market this year. “For the rest of the year, we still expect appreciation for the strong stocks” in the sector, George said.

Photograph: Employees work on the trading floor at the Nigerian Stock Exchange (NSE) in Lagos, Nigeria, on Tuesday, April 2, 2019. Photo credit: Ruth McDowell/Bloomberg