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Cornerstone Insurance Heads For Dividend Drought Amid 48% Half-Year Decline

Musa Cornerstone

Cornerstone Insurance Plc, Nigeria’s fifth largest underwriter by market capitalisation (N10.2 billion as of September 30, 2022), may experience resumed dividend drought that dogged its operations for five consecutive years, as its 2022 half-year financial results have shown.

The 31-year-old insurance firm declared no dividend from 2016 to 2020 after the shareholders received a dividend of 2 kobo per share in 2015. The tardy trend was, however, interrupted in 2021 when the firm declared a dividend of 903.31 million, translating to 5 kobo per share, in 2021. However, the company’s directors enjoyed handsome remunerations amid lean profitability during the dividend drought.

According to the 2022 interim half-year financial results, Cornerstone Insurance posted unimpressive performance in key financial parameters. This is opposed to most of its peers that recorded at least modest growth during the period. Among the industry’s top 10 firms ranked by market capitalization, Cornerstone Insurance was among the few with poor results during the period; it recorded a growth decline of 48.8 percent year-on-year (based on profitability).

Unlike HY 2021 when the firm was able to raise pre-tax profit to N833.78 million, it stumbled to a 48.5 percent drop in HY 2022 posting N429.62 million. Similarly, post-tax profit retracted significantly. The firm recorded a 48.6 percent slump in profit after tax to N408.36 million, from N794.46 million achieved earlier in the corresponding period.

The company’s gross revenue haul had a marginal 4.3 percent setback from N10.76 billion in HY 2021 to N10.3 billion in the reporting year. Gross premium earned, however, showed a positive result of N10.66 billion as against N9.0 billion, an increase of 8.8 percent. Net underwriting income of N6 billion in the preceding period dropped by 2 percent to N5.97 billion in the review space.

An examination of the firm’s HY 2022 financial results further showed that its revenue was obviously challenged by major operating costs which rose significantly during the period. Personnel expenses rose by 42.3 percent to N1.33 billion from N932 million in the preceding period, while staff training and development jumped to N54.28 million from N16.53 million or 228.4 percent. Salaries also moved north: N890 million from N769.45 million in HY 2021, a rise of 15.7 percent.

“The increase in personnel cost and related matters suggest that the insurance company is investing proactively in its human capital because that is her most valuable asset. The employees have to be developed as a basis for securing future growth and generating optimum returns for the stakeholders”, said Ben Udoh, an investment analyst.

Evidently, the impact of high cost of diesel showed in the firm’s repairs, fuel and maintenance expenses which recorded a 21.2 increase to N143.25 million from N118.22 million in the corresponding period. The firm also spent more in business travels which consumed N50.10 million of its earnings as against N20.81 million in HY 2021. The assets base was equally challenged; it dropped by 2 percent to N48.27 billion from N49.30 billion.

Cornerstone Insurance Plc directors’ cost during HY 2022 was N37.19 million as against N10.54 million in the preceding period representing a jump of 252.85 percent. This is more than three times the gross premium written during the period and close to N10 percent of the post-tax profit.

The National Co-ordinator, Independent Shareholders Association of Nigeria, Anthony Omojola noted that the half-year result may not tell sufficient story of the firm’s performance for the year. While the 48 percent drop in post-tax profit could be worrisome, the investment advocacy leader argued that the marginal drop in assets should not be a source of worry given the devaluation of the Naira and inflation. He believes that the third quarter would give a clearer picture of the firm’s performance.

“The directors’ cost is about the same for the two years. The 2 percent drop in assets is commendable in view of the value of the Naira and high cost of materials. Wait for the 3rd quarter results for further comments”, Omojola told THEWILL in a note.

According to Udoh, the sliding numbers will most likely impact on the overall performance making it difficult to avoid the impending dividend drought.

Udoh said the half-year results are indicative of the full-year performance of the firm for the next two quarters. According to him, in view of the depressed economy which does not spare the insurance sector in any particular way, the dwindling value of the Naira and rising inflation, it is not likely that Cornerstone Insurance would post impressive returns during the year.

“There is a declining trend already. The profits are low and operating expenses are rising. Businesses are generally challenged. The half-year result of the insurance firm shows it is not going to be better than 2021”, Udoh said by telephone.

When contacted, Cornerstone Insurance Head of Marketing and Corporate Communications, Cordelia Ekeocha, confirmed receipt of the enquiry but did not respond further as of the time of going to press.

The insurance apex regulator, National Insurance Commission (NAICOM) in August 2020 rolled out a new capital base for insurance firms listed on the NGX Exchange. The announcement revealed that a total of N142.13 billion would be required to meet the new minimum capital base for the 24 of the listed 25 firms.

NAICOM in a circular specified the minimum paid-up share capital of all classes of insurers insurance and reinsurance companies with the exception of Takaful operators and micro-insurance companies. The minimum paid-up capital of life insurance companies was reviewed from N2 billion to N8 billion while that of general insurance companies was reviewed from N3 billion to N10 billion.

The paid-up capital requirement for composite businesses was reviewed from N5 billion to N10 billion. That of reinsurance businesses was reviewed from N10 billion to N20 billion. NAICOM also barred regulated entities from borrowing money to meet the requirements, a move that left the firms with the options of merger and acquisition or capital raise by rights issue. Available data then showed that Cornerstone Insurance would seek additional capital of N8.05 billion to boost 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 of directors had reached a decision concerning a proposed issuance of bonus shares to its shareholders as part of the plans to meet its recapitalization mandate. In a notice that was sent to the NGX Exchange, the firm said the resolution on bonus shares was one of many other resolutions that were reached when its board of directors met on July 22, 2020. It said that the bonus shares would be issued in the proportion of seven new shares for every thirty shares of fifty kobo each, already held by shareholders.

The company’s market capitalisation as of September 30, 2022, according to data by the Nigerian Exchange (NGX) was N10.17 billion; its share price closed N0.56 at last Friday’s trading.