Distinguished shareholders, the representatives of various regulatory authorities, invited guests, gentlemen of the press, ladies and gentlemen, it is my pleasure to welcome you to the 23rd Annual General Meeting of our dear company, Sovereign Trust Insurance Plc and to present the Annual Reports and Accounts for the period ended December 31, 2017 for your consideration.
The year 2017 was no doubt an eventful one in all ramifications both at the global and national space. However, amidst all the vicissitudes, we were able to improve our performance as much as we could during the year under review.
The flexibility of our business structure and strategy have been very much responsible for our continued relevance in the Nigerian Insurance market despite the difficult operating environment.
Before going into the report relating to our performance, it is pertinent to examine the global and domestic environments and how these impacted our operations during the year under review.
THE GLOBAL ENVIRONMENT
The year 2017 began with the inauguration of Donald J. Trump as the 45th President of United States of America and the election of Emmanuel Macron as President of France. It was a year in which the word “bitcoin” became a commonly-used term by many Americans. This volatile digital currency captured the attention of both investors and non-investors by having rapid increases and swift declines in value during the year. It is unclear whether bitcoin has the staying power to compete with trading currencies, such as the U.S. Dollar, Euro and the Japanese Yen. Regardless, the technology behind digital currencies referred to as block-chain has implications that go far beyond the currency markets.
During the year, North Korean nuclear threats and hurricanes in Texas, Florida and Puerto Rico dominated the headlines. The issue of climate change and global warming constitute major challenges of our time and have added considerable stress to our society and environment. Despite all of these worries, the markets and economies across the globe continued to perform relatively well. Year 2017 would also as the year when the global economy began to experience synchronized growth. Since the financial crisis and recession in 2007-2009, certain economies have done well while others have struggled. 2017 was the first year in which almost all countries around the world experienced some form of growth. Whether it was global manufacturing or the ever-important service sector, expansion began to replace stagnation and decline. In the U.S., small business optimism and consumer confidence reached levels not seen in many years.
The U.S. stock market performed very well in the year 2017 in that market capitalization finished higher on a month by month basis. It was a year that witnessed continuous positive results. International stocks in the developed markets of Europe and Japan, as measured by the MSCI EAFE Index, rose to 4.2%, and the MSCI Emerging Markets benchmark did slightly better, gaining 7.4%.
The global economy experienced improved recovery, reflecting a rebound in investment, manufacturing activity and trade. This improvement came against the backdrop of global financing conditions, generally accommodative policies, rising confidence, and firming up of commodity prices.
According to the World Bank report, global GDP growth is estimated to have picked up from 2.4 percent in 2016 to 3 percent in 2017.
DOMESTIC BUSINESS ENVIRONMENT
The Nigerian economy moved out of recession by the end of June 2017 after four quarters of negative growth triggered largely by lower global energy prices and a reduction in oil output. Renewed momentum was maintained in the third quarter with GDP up by 1.4% year-on-year and grew by 0.68% between second and third quarters of 2017. According to data issued by the National Bureau of Statistics (NBS), the economy had grown by 0.43% year-to-date by the end of September, 2017.
One of the factors that contributed to the improved economic performance was an upturn in oil production. Output from Nigeria’s fields averaged 2.03m barrels per day (bpd) in the July-September period, up 420,000 bpd y-o-y and 150,000 bpd higher than production in April-June. The third quarter results were the highest since the first quarter of 2016, when output averaged 2.05m bpd. Improved growth was reflected in oil’s contribution to the broader economy, which rose one percentage point over the previous quarter to 10.04% of GDP.
The rebound in the energy sector was in part offset by a subdued performance from the non-oil economy, a trend that has endured since early 2016. The non-oil sector contracted by 0.76% in July-September, following growth of 0.72% and 0.45% in the first and second quarters respectively. Manufacturing was one of the key underperforming sectors, recording negative growth of (2.85%), compared to a (0.64%) year-on-year decline in the previous quarter. Growth in the construction sector, meanwhile, was up 5.67% points albeit having eased 0.59% points from the previous quarter. Despite its muted performance and energy’s rising contribution, the non-oil component still accounted for nearly 90% of GDP, down only marginally from previous quarters.
Relative stability in the Niger Delta, uptick in the global oil prices, improvement in Diaspora remittances and establishment of the Investors and Exporters Foreign Exchange Window by the CBN in April 2017 have led to significant growth in the country’s external reserves especially in the second half of the year. The Central Bank of Nigeria data showed that the nation’s external reserves increased significantly by $12.9bn to $38.73bn in December, 2017. The improvement in external reserves had in no small measure supported the stability of the Naira against the dollar as exchange rate was consistently maintained within N360-N365 range to a USD.
According to NBS report, the country’s unemployment rate increased in 2017. This is one of the macro-economic issues currently being tackled by the government and hopefully, the rate of unemployment will improve very shortly which will also increase the rate of effective demand for insurance.
Inflation remained stubbornly high in 2017, despite easing after a spike at the beginning of the year. The consumer price index was running at 15.9% at the end of November, marginally down from October’s level and below the year’s peak of 18.72% in January. The Central Bank of Nigeria chose to hold its monetary policy rate at 14%, the same rate it maintained throughout 2017 while acknowledging that a high rate could weigh on growth and stability, the Monetary Policy Committee said it would have a positive impact on inflation and support exchange rate stability.
In all of these, economic activities were just gearing up to reposition the purchasing power of the populace which invariably would translate to increase in demand for insurance in the years ahead.
INSURANCE INDUSTRY REVIEW
The Insurance sector, like every other sector of the economy in the year 2017 struggled to overcome the challenges posed by the lingering effects of the economic recession experienced in the previous year which left businesses in a stagnated position and eroded the purchasing power of the populace thereby slowing down their urge for insurance. The effects of the recession, which manifested in job cuts in various sectors and lull in economic activities in both the formal and informal sectors of the economy was evident in the non- renewal of most insurance contracts in both life and general businesses due to reduction in disposable income. As a result, efforts by the sector’s operators and regulators to deepen insurance penetration in Nigeria and improve on the sector’s contributions to the Gross Domestic Product (GDP), yielded not much result as the sector merely recorded minimal growth during the year.
During the year, NAICOM, released a document titled: Statement of NAICOM’s Regulatory Priorities in 2017. In the document, NAICOM highlighted its regulatory priorities for the year as: undertaking verification of capital resources, assets of insurance institutions, re-launch of the MDRI with special and intensified implementation efforts on enforcement of compulsory insurance, diversification of distribution channels, increase in access points for insurance services, introducing micro-insurance, deepening Takaful insurance, improvement in data collection as well as promotion of financial literacy.
From the positive point of view, the regulator and the industry operators made remarkable effort to achieve deeper penetration of insurance nationwide.
The Commission, from the beginning of the year emphasized that the main area of focus would be on awareness creation. The moment Nigerians become aware of what they stand to benefit from insurance, they will be willing to purchase policies which will reduce Nigerians’ apathy towards insurance products.
We commend NAICOM’s continuous effort in trying to deepen insurance penetration in Nigeria.
The drive to continue to uphold comprehensive growth strategy still forms the background upon which our company is built. In the midst of the various challenges that characterized the industry within the year, our company was able to record Gross Premium Written of N8.5billion representing a 33% increase over the N6.3 billion recorded in 2016. The Net Claims Expenses in 2017 was N1.3billion which is a 9.5% improvement over the sum of N1.44billion recorded in 2016 as a result of efficient claims management.
In the same vein, the company recorded a Profit Before Tax of N202million as against N44million recorded in year 2016 representing over 351% increase. Profit after tax also stood at N157million, a 569% increase when compared with the sum of N23million recorded in 2016. Consequently, the Return on Capital Employed (ROCE) recorded a positive performance of 1.87% as against 0.47% achieved in the corresponding year of 2016. Similarly, our Investment income rose by 41.6% from N286million in 2016 to N406million in 2017.
In addition, our total assets rose from N9.5billion to N10.8billion representing 13.7% increase. The composition of our assets was well structured to position the company for better future performance.
With this result, the resilience of our brand has once again been brought to the fore with proven capability to substantially increase our level of profitability. This performance could not have been achieved without the efforts of the unified Sovereign Trust team and our commitment to structured business strategies aimed at aggressive revenue generation and cost curtailment in the course of the year.
Mr. Ademola Dania resigned his appointment as a member of the Board on December 19, 2017. We thank him for his contributions while he was a director and wish him well in his future endeavours.
Retirement by Rotation
Ms. Emi Faloughi would be retiring by rotation and is eligible for re-appointment as non-executive director.
May I also in the same vein inform this gathering that two eminent Nigerians, Messrs. Abimbola Oguntunde and Sam Egube were appointed as non-executive directors to the Board. They are persons of impeccable character and achievements in their respective fields.
The company also appointed Messrs. Jude Modilim and Niyi Odusi as Executive Directors Technical and Branch Operations & Business Development respectively. We are of the expectation that their wealth of experience will set a new and progressive pathway for the company. Kindly join me in welcoming them to the organization.
In preparing the organization for the challenges of the future and in response to the ever-evolving dynamics of the marketplace, our company embarked on a five-year strategic journey. The strategic blueprint was conducted by KPMG, one of the leading consulting firms in the country.
Part of the objectives amongst others will be to position the company as one of the top five insurance companies by year 2022 in terms of revenue and profitability while also looking at re-inventing the operations of the organization by making it the preferred underwriting firm with regards to non-life and special risks underwriting.
Just very recently, NAICOM announced the Risk Based Supervision (RBS) model which it had been considering for a while now. With this development, Insurance companies are to operate within a 3-Tier-Based Minimum Solvency Capital, (TBMSC) as directed by the Regulatory body. This comes along with a lot of changes in the way businesses will be conducted henceforth. The RBS is a European Insurance market supervisory initiative, and according to the World Bank, is a supervisory approach that considers each of the risks that companies face and through a structured process, identifies the risks that are most critical to the financial viability of the institution.
It is important to state our company’s resolve to adequately operate in the Tier-1 category with the plan of increasing our capital base both organically and inorganically before the commencement of the Tier Based Minimum Solvency Capital (TBMSC) regime.
The dynamism of the business environment will continue to pose its challenges and opportunities for operators, but our strength is always built on applying the right approaches and strategies capable of achieving optimal operational efficiency and performance. Sovereign Trust Insurance Plc is very well positioned to take advantage of the opportunities that lie ahead.
Finally, distinguished shareholders, I want to thank our various stakeholders for their confidence in the company and assure you that we would continuously strive to keep our organization on the path of growth. Let me also use this opportunity to express my sincere gratitude to my colleagues on the Board, both executives and non-executives for their unalloyed support and unwavering interest in the affairs of our company. I would also like to acknowledge the continued commitment and enthusiasm demonstrated by members of staff and Management all of whose contributions I sincerely appreciate.
OLUSEUN O. AJAYI