ABSTRACT
The aim of this study is to analyze he impact and
benefit of the capital market in the realization of the insurance industry
contribute to the economy. Despite the low number of insurance companies listed
in the stock exchange, there are positive prospects of improvement after the
recent capitalization. The problems encountered during the research would be
addressed through the implementation of the suggested solution. It was finally
conclude that capital market contributes to the growth of insurance sector in .
CHAPTER ONE
1.1 INTRODUCTION
For any country to be economically sound, she must
experience a growing economic sector. It is of interest to and
other third world countries to attain a steady economic growth rate, as this
would enhance National development. Economic growth and development involves an
increase overtime of per capital real gross National product (G.N.P) and the
welfare of the population.
For economic growth to be achieved, a certain
issues that act as constraints ought to be tacked. These issues include
technological development, human resources development, low productivity,
capital formation, price stability etc. (Iniodu 1996). And as Nwankwo (1991)
observes, capital formation which is the function of an efficient financial
system is very vital” capital formation involves the mobilization and
channeling or resources form the surplus spending units (ssu) to the deficit
spending unit (Osu). The
capital market is a critical part of the financial system which performs this
allocative role.
The market is the long term end for financial
market. It is made up of the market and institutions, which facilitate the
issuance and secondary trading of long term financial instruments. Unlike the
money market which function basically to provide short-term funds, the capital
market provides funds to industries and government to meet their long-term
requirements.
The capital market has it’s mission statement that
is “promoting the
capital market to respond to the socio-economic development need of the
nation”. The objective of the capital market is to mobilize long-term funds for
investment. The capital market is performing various functions. The capital
market provides an additional channel for engaging and mobilizing domestic
savings for productive investment and represents alternative to bank deposit,
real estate investment and the financing of consumption loans. It also provides
deposit with better protection against inflation and currency and depreciation.
Another major function of
capital market is to improve the efficiency management changes as compared with
the administrative or potential mechanism of public sector corporations. The
capital market facilitates the transfer of enterprises from the public sector
to the private sector and encourages privatization by increasing the
marketability of new issues. The capital market employs some instruments used
to raise funds, these instruments are equities-ordinary shares and preference shares. Debt government bonds
(federal state and local government). Industrial loans / debenture stocks and
bonds.
The players in the capital market are the funds
providers who are individuals, unit trusts, pension funds, insurance companies,
government intermediaries are the stock broking firms, issuing housing,
registers, audit firms and regulators e.g. securities and exchange Commission.
The
stock exchange central bank of
and the federal ministry of finance.
However, there is a growing concern about the
efficiency or otherwise of the
capital market and to the role f the insurance sector. Ajayi (1984) sees it as
“efficient in the sense that, the capital market has increased the nation’s
output and equitable distribution of the output.
But, Williams (1988) see that capital market as
“inefficient in pooling funds for investment” he observe further that by
participation of only a few elites, it has helped to widen the gap between the
rich and poor.
This project attempts to determine the influence
of this market on the growth of the insurance companies in . In
particularly, its sees to clarify the role of the insurance companies as key
players in the capital market and how role has strengthened insurance business
in .
1.2 STATEMENT OF THE PROBLEM
To understand the subject matter we will look at
the capital market on the growth of insurance in Nigeria. We want to, also
believe that the insurance company is a member of the capital market which
function among others involves in the channeling of long-term funds from the
surplus to the deficit for investment, but after the finding of William (1988)
was sees the capital market as being inefficient, implying that insurance
company is inefficient in pooling funds fro investment. He also added that only
a few elites get such funds thereby creating a gap between the rich and the
poor.
At
this point I will like to identify those factors that have render the insurance
sector the efficient and that must be done to correct those capital of both
life and general insurance to #20 million and #50 million, where the general
business includes oil and gas insurance, among another activities. Reinsurance
has a minimum paid-up capital of #150 million (Akpan 1999). One of the major
sources of capital insurance companies is the capital market that has being fully
descried in the introduction.
Examining the performance of the five companies
quoted on the stock exchange, prestige assurance, insurance and Allco
insurance company’s profit before taxation and also an increase in the profit
after taxation. Dividends were also recommended a dividend payout of NGN,
55,440, 625, while Allco recommended NGN 70 million to share holders. This was
made possible by the allotment of right issues in the year 2003 per all three
insurance companies which was as a result of the company’s recapitalization
plan.
The
same cannot be said for crusade and unic insurance, which recorded a slight
decrease in 2002 and 2001 despite the impact of the capital market. This can be
as a result of the general impact of variable knowing fully well that the main
function of an insurance company is indemnity which is taking an individual to
where he or she was before he or she suffers loss and finally is want to know
why only few insurance companies are quoted.
1.3 OBJECTIVE OF THE STUDY
The objective of this research are as following:
1) Examine the capital market in the
development of the insurance sector..
ii) Appraise the impact of the capital
market on the growth of the insurance business in .
iii) Identity the problem confronting the
insurance companies as beneficiaries of the services provide by the capital
market.
iv) Make recommendations on the efficient
management of the
capital market.
1.4 SIGNIFICANCE
OF THE STUDY
At this time, the Nigeria government is
intensifying efforts to boost the country’s economy, the need to research on
the fact that led to economic growth in Nigeria cannot be understated. This
study will aid our understanding of economic development via the insurance sub-sectors
participation in the capital market.
Thus, this research work is considered to be
important to:
i) The
government for policy formulation.
ii) The business community for the purpose of
investment and capital formulation.
iii) The result of work will serve as a reference
materials for researches.
iv) This study will enhance the knowledge of the
researcher more about the capital market and the insurance sector.
1.5 SCOPE
AND LIMITATION OF THE STUDY
In
the course of carrying out this research work the researcher was faced with
some limitation. Such as:
1) Time
constraint: The duration allowed for this study is limited and insufficient
for wide traveling together materials.