Here is a great article by Godfrey Obioma on the why you should own insurance stocks:

Why insurance stocks should be your long term choice
by GODFREY OBIOMA

An investor who had taken positions in insurance stocks early in 2007 and sold them late in the year or even early this year made a harvest through capital appreciation. That was because many insurance stocks rallied on the injection of capital through the consolidation exercise and perception that the sector would follow the earlier trend in the banking industry. At the end of the February deadline, many short term investors had rode on the back of the euphoria to anticipate a roller coaster trend. But the story has changed. Investors are now more interested in fundamentals, like earning and profitability. Except for a few, results coming in from that sectors, are not too impressive to drive up prices appreciably. Although there have been improvements, discerning investors think it is not yet uhuru for speculators.

The insurance market in Nigeria is small with low growth . About 70 percent of premium is distributed between marine, general accident and motor insurance policies.. A study by Afrinvest West Africa shows that gross premium increased just by 17.5 percent between 1996 and 2005 and 15.3 percent between 2003 and 2007. The company estimated total market size of N98.8 billion (US$844 million) in 2007. Penetration is low, in the insurance market, with lowest level of market depth in the life insurance product. Afrinvest research shows that of the 20 million people in formal and informal employment across the working population, less than 1million currently hold personal insurance policy.

Compared to banking , securities market and asset management business, the insurance sector is slow with very low inflation adjusted growth in the last 10 to 15 years. To address these problems, .the Federal Government, in September 2005, announced new minimum capital requirement . According to National Insurance Commission ( NAICOM),, the capital requirement for life insurance was increased from N150 million to N2 billion; general insurance , from N200 million to N3 billion while reinsurance was hiked from N350 million to N10 billion.

There is however silver in the horizon as the consolidation exercise has strengthened many insurance companies, created a lot more confidence in the sector. Besides, the economic reform which has boosted economic activities , is expected to drive increase in insurance business. while the increase in bank lending would enhance corporate and industrial insurable assets and gross premium..

Following the consolidation exercise, insurance companies have grown their shareholders funds. Leadway Assurance, for example , has shareholders fund of N9.4 billion; WAPIC Intercontinental N9.3 billion; A11CO N5.9 billion; Niger Insurance N5.5 billion; Gold link N5.4 billion; and Mutual Benefits N4.0 billion.

On the floor of the stock exchange, many insurers have demonstrated strength as their market capitalisation are fairly okey. WAPIC Insurance has market capitalization of N53.5 billion, Goldlink N48 billion; Niger Insurance N37.0; LASACO N34.9 billion, International Energy Insurance N34.9 billion and Cornerstone N30.5 billion..

Insurance companies have some of the highest price earning ratios showing high investment returning period. Notwithstanding, a number of them , are matching the record of banks in this area. The companies with some of the lowest PER are Prestige Assurance with 27.9 billion multiples; NEM Insurance 27.9; International Energy Insurance ;WAPIC Intercontinental 31.8 and Royal Exchange Assurance 35.1.

In terms of gross premium, Leadway has N5.7 billion; WAPIC Intercontinental Insurance N3.2 billion; Niger Insurance N3.1; AIICO N3.0 ; Cornserstone N2.7 billion; Royal Exchange Assurance N2.4 billion; Mutual Assurance N1.9 billion and Staco N1.7 billion.

The new capital levels and mandatory local content policy as well as the compulsory group life assurance under the pension Act are also expected to stimulate growth in the sector.

There are strong indications that some underwriters are tilting towards non insurance businesses like stock market investment, real estate, and oil and gas, which, although detract from , the objective of instilling professionalism in the sector, may on the long run grow bottom-line and investors’ returns.

With so much money pooled by insurance companies, the continuing economic reforms and opportunities for growth in earnings, the market is very bright for insurance stocks and long term investors are likely to reap the good returns.