Negative reserves delay underwriting firms from declaring dividend

Shareholders may have to wait until insurance companies clear their negative reserves, before they can declare dividend.

Following the capital market crisis in the country in 2008, most underwriters who had invested heavily in equities have their accounts in negative, while the share value of insurance stocks, alongside other listed equities witnessed a sharp price drop.

Business 247 News Online learnt that this allows most underwriters to incur heavy losses and were made to make huge provisions for doubtful investment, leading the firms to have negative reserves.

While most of the underwriters are making profits on a yearly basis, Business 247 News Online investigation revealed that insurers devoted most of these profits to clear their negative reserve, and until they pay back the debts, shareholders might have to wait longer to get good returns on their investments.

Insurance shareholders have at various Annual General Meetings (AGMs) lambasted underwriters for their failure to give them dividend or bonus, especially as some companies have declared nothing to their shareholders in the last five years.

Speaking on this development at a seminar organised by the National Insurance Commission (NAICOM) for insurance correspondents in Gombe, Gombe State over the weekend, the Director, Finance and Account, NAICOM, Mr. Nicholas Opara, disclosed that by regulation, the companies are not allowed to pay dividend until they clear their negative reserves.

“The commission will always ask them to extinguish the negative reserves before they pay dividend. Hopefully, most of them are making profit and if it continues, they should be able to declare dividend in the near future,” he pointed out.

Shareholders of insurance firms across the country are not happy that their companies, for years, have not declared dividend.

The shareholders, who expressed grievances at the AGMs of the underwriting firms that had so far held their 2015 AGMs, were unhappy that their companies, in spite of making profits, still could not pay meaningful dividend or bonus to shareholders, while some had their accounts in negative after offsetting their previous debt.

National Chairman of the Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, was unhappy about the low level of insurance penetration in the country and its contribution to the Gross Domestic Product (GDP), stating that this has accounted for the below par value at which most of the listed insurance stocks are being sold on the Nigerian Stock Exchange (NSE).

The shareholders, he pointed out, require return-on-investment and performance, charging insurers to improve in this regard.