Complete Material Cost #3,000
Order for Complete Material now
ABSTRACT
The insurance industry is one of the components of the Nigerian financial system and reforms which is continuously introduced to enhance the operational performance of the companies in the industry. The study tends to show the mergers and acquisitions in insurance companies on financial performance, Recapitalization, profitability of insurance companies. Companies merge for many reasons, some companies merges with either its supplier or consumer purposely to enable the resulting company to acquire raw materials at the marginal cost through vertical integration, others merge for growth and market power and to eliminate competition mainly through merging with a competitor to create more power in the market. Other companies merge to diversify, like acquiring another company in a seemingly unrelated industry in order to reduce the impact of a particular industry’s performance on its profitability.
An insurance company’s primary objective is to restore the insured/policy holder back to the condition the insured was in before a loss and to spread risk through reinsurance. Insurance company’s main role is to make a profit as they are in business. This study assesses the pre and post merger insurance ratios-APA Insurance Company Limited formed in 2003 following the merger of Apollo and Pan-Africa General divisions. Regression analysis was employed in analyzing the data. It is recommended that insurance companies should be more aggressive towards securing bigger and better insurance contracts so that the increased share capital base could be efficiently and effectively utilized. Keywords: Mergers, Acquisitions, Recapitalization, Profitability, Financial performance, insurance companies.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Mergers and acquisitions have acquired increasing societal importance in recent years. Owing to the presence of well-developed financial markets, mergers are a common occurrence in the advanced economies of the world, with a particularly high level of activity in the United States. Usually, mergers and acquisitions are procedure conducted in order to maximize returns of the firms or generally enhance their operations. The study seeks to situate mergers and acquisitions in Nigeria insurance industry. In order to achieve this effectively, the study also seeks to uncover the relationships that exist between Mergers or/ acquisitions and the financial performance of the resulting merged firm. In examining mergers and acquisitions and in revealing these relationships, the study draws on financial data gained from audited books of accounts of merged insurance companies. The study will enable a better understanding of whether a firm’s current approach to management of its operating arrangement is sufficient in aiding it success in its current operating environment.
1.2 STATEMENT OF PROBLEM
The world is in a state of regression being influenced by the forces of globalization and fast technological changes and as a result firms are facing intense competition.
Merger and acquisition to firm’s performance has been little developed. Hence, how mergers influence firms‟ performance lacks empirical backing as the few studies that have been conducted on the same provide mixed results.
Mergers are on an increasing trend in the Nigeria insurance industry. As per “Republic of Nigeria Budget Statement for the Fiscal year 2012 / 2013”, the trend globally is towards converging of financial services where banking, insurance and stock brokerage are being offered under one roof.
In addition, insurance companies to have consolidated supervision to enhance oversight in this part of the financial sector and its players.
1.3 OBJECTIVES OF THE STUDY
- To analyze the effects of mergers and acquisition on the financial performance of Insurance companies.
- This analysis will therefore give an insight into mergers and acquisitions in insurance companies on the financial performance.
- It is also the objective of this research work to show the recapitalization and profitability of insurance companies in Nigeria.
1.4 RESEARCH QUESTIONS
- Do Mergers and Acquisitions contribute positively towards the financial performance of insurance companies?
- What are the relationship between mergers and acquisitions in insurance companies?
- Are the effects of mergers and acquisitions on financial performance of insurance companies made it to be unprofitable?
1.5 STATEMENT OF HYPOTHESIS
Neeka Igbara (2004), posit that it is a statement of the expected relationship between independent dependent variables. In light of the above, the findings may be true and accepted or not true and rejected.
The null hypothesis is denoted by Ho, while the alternative is denoted by Hi.
The hypothesis of the study will therefore read as follows;
- H0: Mergers and Acquisitions dose not contribute positively towards the financial performance of insurance companies.
H1: Mergers and Acquisitions contribute positively towards the financial performance of insurance companies.
- H0: There is no relationship between mergers and acquisitions in insurance companies?
H1: There is a relationship between mergers and acquisitions in insurance companies?
- H0: The effects of mergers and acquisitions on financial performance of insurance companies made it not to be unprofitable.
H1: The effects of mergers and acquisitions on financial performance of insurance companies made it to be unprofitable.
1.6 SIGNIFICANCE OF THE STUDY
As mentioned earlier, very few studies have been conducted on M & A besides the same having generated inconclusive and mixed results. This study would therefore be of interest to scholars, customers (policyholders), shareholders, employees, managers, the regulator, reinsurers and government.
To the scholar, the study would be as source of empirical reference and literature review. It will provide a ground of further research to the scholar.
To the policyholder, mergers can create monopolies and affect customer welfare through reduction of competition and hence unfair prices to the policyholder. Thus the study will bring out the positives and negatives and enable policyholder’s welfare union e.g. the Policy holders‟ Compensation Fund (PCF) for insurance companies to air their views when faced with a merger. This will ensure that customer interests are taken care of as mergers monopoly only reduce the value that customer gets.
To the regulator, Insurance Regulatory Authority (IRA), to understand how better to mitigate the risks that engrosses the insurance industry in Nigeria. With the existence of the current IRA law on demergers involving composite insurers where by insurance companies are to separate their life portfolios from their general insurance portfolios for better risk management and to do away with mismanagement, mergers will be seen as the only effective strategy in achieving this.
To the shareholders, the study will help to widen their knowledge when faced with decision on mergers and acquisition and how a merger will boost their overall wealth. To the employees, the study will enable them to assess the stability of the firm and
hence their job security. To the managers, the study will enable them understand the importance of engaging in joint operations which will put the merged entity in a competitive position not only in Nigeria but also across borders, covering the wider region which will in turn enable that company effectively mitigate risk (especially political risk) and boost profitability.
To the reinsurer, to understand the need of increased underwriting capacity, treaty and facultative, as a result of increased capacity of its underlying underwriter as a consequence of the merger.
Finally, teachers, students and lecturers will find this research project to be very helpful.
1.7 LIMITATION OF THE STUDY
There are various kinds of problems that limit this research project as well as its reliability.
Such problems include the perception interest of management and staff to conceal vital and sensitive information on corporative attitude of respondents to subtle withdrawal and withholding of necessary information relevant to the research work.
Also, lack of fund, time duration required for the completion was too short.
Finally, the huge cost of researching and travelling in bids to acquiring necessary data, and time constraints as a militating factor against the retrieval of this information is another chronic problem.
1.8 DEFINITION OF TERMS
MEANING OF MERGER: A merger connotes the combination of two companies into one larger company for some economic or other strategic reasons. It is defined as a transaction in which corporation of relatively equal size, combine. It is also seen as a transaction in which two or more corporations combine under state corporation law, with the result that all but one of the participating corporations loses its identity. Sherman and Hart describe a merger as a combination of two or more companies in which the assets and liabilities of the selling firm(s) are absorbed by the buying firm.
A merger (or an amalgamation) occurs when two or more companies transfer their businesses and assets to a new company (or to one of themselves) and in consideration, their members receive shares in the transferee company.
MEANING OF ACQUISITION: The term acquisition has been described to mean a transaction in which a large corporation purchases a small corporation. It could be the purchase of an asset such as a plant, a division or even an entire company. This may be by the purchase or lease of the shares, interest or assets of the other company in question or the amalgamation or other combination with the other company in question. An acquisition occurs when one company acquires sufficient shares in another company so as to give it control of that other company. Acquisition (sometimes is referred to as a takeover) which is the purchase of one company (the target), the smaller firm by another, the (larger one).
MERGERS AND ACQUISITIONS: The phrase ‘mergers and acquisitions’ (abbreviated M&A) has been referred to as the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry, grow rapidly without having to create another business entity. The terms ‘merger and acquisition’ are often used interchangeably to mean the same thing, and in a more common sense used in the twin form of ‘mergers and acquisitions’. In this regard, the term ‘acquisition’ can be interchanged with takeover.
MEANING OF INSURANCE: According to Oxford Advanced Learners Dictionary Insurance is an arrangement with a company in which you pay them regular amount of
money and they agree to pay the cost.
MEANING OF COMPANY: According to Oxford Advanced Learners Dictionary Company is a business organization that makes money by producing or selling goods or services. Company can also be referred as a group of people who work or perform together.