INTRODUCTION
Distinguished Shareholders, fellow Board members, representatives of the various regulatory authorities here present, members of the Press, ladies and gentlemen. It is my pleasure to welcome you all to the 28th Annual General Meeting of our company, Sovereign Trust Insurance Plc, and to present to you the Annual Report and Accounts for the period ended December 1, 2021 for your consideration.
Year 2022 witnessed a number of significant events which to a large extent affected global stability economically, socially, and politically. From the ongoing Russia-Ukraine War to the death of the Queen of England, Queen Elizabeth II, the longest-serving British Monarch, and the ascension of the new King of England, King Charles III. The UK also experienced changes in government after the resignation of Prime Minister Boris Johnson. Ms. Liz Truss later took over the mantle but was forced to resign which led to the emergence of Mr. Rishi Sunak as the new Prime Minister within a spate of three months. Some have ascribed the situation as a fallout of the Brexit saga.
The world’s population also hit a staggering 8 billion mark while an assessment of the domestic and international business environments revealed that many economies had challenging times which necessitated the introduction of various initiatives around the Globe geared at promoting economic growth and stability.
Permit me to give you a brief overview of the events that occurred both domestically and globally during the year under review and how they affected our operations.
THE GLOBAL ENVIRONMENT
The global outlook deteriorated noticeably throughout 2022 amid high inflation, aggressive monetary tightening, the ongoing Russian-Ukraine war and the lingering pandemic. Most notably in the year, the COVID-19 pandemic eased in many countries and in September 2022, the Head of the World Health Organization declared that “the end of the pandemic was in sight”. That reality was evident in the fact that many countries eased their lockdowns, travel restrictions, and other related measures that they had imposed when the pandemic swept across the world in early 2020.
The economies of most countries suffered a setback in the year under review as evidenced by spiraling inflation, currency plunge and severe fuel and food shortages. According to the United Nations Children’s Education Fund, (UNICEF), almost 8million children under the age of 5 in 15-crisis hit countries were at risk of death from severe malnutrition in 2022.
The currency of many African countries lost significant value during the year. According to Famine Early Warning System Network, (FEWS NET) in 2022, it was indicated that the rise in the costs of food and transportation had a negative effect on the purchasing power of low-income households and this contributed to an increase in the inflation rate.
Soaring food and energy prices also eroded the real incomes of households triggering a global cost-of-living crisis, particularly for the most vulnerable groups. Growth in the world’s three largest economies-the United States, China, and the European Union weakened with significant spillovers to other countries. At the same time, rising cost of government borrowings and the large capital outflows exacerbated fiscal and balance of payments in many developing countries. In the same vein, world inflation hit 9.8% compared to the 4.7% recorded in 2021.
Humanitarian crises deepened greatly as the world grappled with the effects of climate change and other natural disasters such as the flood in Pakistan, wildfires in South Korea, Argentina, and North America coupled with earthquakes in China and Indonesia. One of the most worrying environmental challenges that was very pronounced in the year was the plastic pollution. Close to 400 million tons of plastic waste are generated every year – a figure set to double by 2040. Only a fraction of that is recycled and much infiltrates the environment including the ocean where it causes a host of problems for humans and wildlife. On a positive note, The EU approved a €28 billion German renewable energy scheme. The approval is aimed at rapidly expanding the use of wind and solar power. It is designed to deliver Germany's target to produce 80% of its electricity from renewable sources by 2030.
One of the high points in the global business landscape in 2022 was the phenomenal takeover of Twitter by Tesla’s CEO Elon Musk at a huge sum of $44b. The takeover was a significant turn of events for the social media organization which was then merged with its Parent company named X Corp.
Although oil markets are no strangers to volatility, oil prices exhibited notable swings in 2022. Russia’s invasion of Ukraine created significant uncertainty and prices spiked accordingly. Brent, the industry’s main global benchmark exceeded $133 per barrel – moving more than $50 compared to the beginning of the year. Prices eased accordingly and ended the year around the same level it started. However, it was 43% higher when compared to 2021.
DOMESTIC BUSINESS ENVIRONMENT
In Nigeria, quite a lot of remarkable events shaped the year. From the build-up of activities leading to the 2023 general elections to the heightened security challenges among other notable happenings in the country took center stage in 2022. The year being Pre-General Election year witnessed a lot of politicking that led to the emergence of three major candidates vying for the exalted position of President of the Federal Republic of Nigeria. The atmosphere undoubtedly took its toll on economic activities in the country as a lot of investors and business operators had to apply caution in making business decisions pending the outcome of the elections.
Given the enormity of the macroeconomic headwinds and the numerous fiscal and monetary policy shocks, the Nigerian economy could be adjudged to have demonstrated remarkable resilience in 2022. However, the economy did not grow as it should due to macro-economic shrinking government revenue and heightened inflationary pressure.
Nigeria’s economic growth dropped to 3.10% in the year 2022 from 3.40% in 2021. According to the Gross Domestic Product (GDP) report released by the National Bureau of Statistics (NBS), the non-oil sector continued to be the major contributor. On the flip side, Nigeria’s crude oil production also was below the expected 1.88 million barrels per day which invariably led to reduced government revenue.
According to the National Bureau of Statistics (NBS) report, headline inflation was 15.60% at the beginning of the year which rose to 21.34% in December 2022, while food inflation consistently outpaced headline inflation and core inflation during the year. In a similar vein, the Monetary Policy Rate (MPR), which is the benchmark interest rate, experienced a hike of 45% from the initial 11.5% at the beginning of the year to close at 16.5% in December 2022. This largely affected the cost of funds and led to a lull in the capital market. This hike in MPR, according to the Central Bank of Nigeria (CBN), was necessitated by the spike in inflation rate.
Another important challenge during the year was the scarcity of foreign exchange (forex) which was a major predicament that investors grappled with in 2022. According to the Centre for Promotion of Private Enterprise (CPPE), the year witnessed forex illiquidity which manifested in an acute shortage of foreign exchange in the official window.
The year ended with the introduction of the Naira redesign policy and the move towards the creation of a cashless society which placed limits on the maximum amount of cash that can be withdrawn from the banks.
INSURANCE INDUSTRY REVIEW
At the onset of the year, insurers were very optimistic that the year would witness accelerated economic growth and additional digital technology investments which would generate significant development for the industry. In its 2022 global insurance report, Deloitte posited that the year was going to witness significant growth in the industry but the invasion of Ukraine to a large extent dashed those hopes. Premium income grew slower than originally assumed as the war took its toll on economic activities just as confidence level reduced. Overall, global premium income grew by just 8.9% to $5,947billion from $5,460billion which was below expectation.
Nigeria’s insurance sector operators in year 2022 commenced a major shift to a new landscape through migration in their mode of operation from a manual to digital model. In the same vein, National Insurance Commission (NAICOM) completed its migration from analogue to the digitalization of its core processes which included the execution of Projects, e-regulation and deployment of the Enterprise Resource Planning application. The Insurance Web Aggregators Operational Guidelines were introduced to serve as a working document to register, supervise and monitor web aggregators as intermediaries who provide information on products and prices of different insurers.
During the year, the Commission also commenced the pilot scheme of its Risk Based Supervision (RBS) examination. A number of insurance companies were selected for the pilot scheme with the view to extending the exercise to other insurance institutions subsequently. NAICOM has started training its Staff on Risk-Based Capital (RBC) in collaboration with Financial Sector Deepening Africa (FSD) stressing that insurance operators are expected to carry out capacity building of their Staff on RBC as involvement of the operators on the framework is very demanding in terms of human capital, technical capacity and other resources.
In addition, Third Party motor insurance premium was increased from N5,000 to N15,000 and the attendant claim benefit was also increased to N3million. Likewise, NAICOM, through its circular increased the minimum chargeable premium on Comprehensive Motor Insurance Policy to 5% of the sum insured.
The Nation’s insurance industry at the end of 2022 recorded significant growth in key indices including gross premium written, total assets, improved market regulation, increased awareness and consumer confidence. In its market report, NAICOM recorded a remarkable gross premium of N726.2 billion, representing a growth of 17.8% year-on-year. This is a remarkable achievement compared to a 3.5% growth in Gross Domestic Product (GDP) over the same period. In terms of market size, total assets of the industry stood at N2.33 trillion in 2022, sustaining a positive growth that signifies expansion at the rate of 4.4% year-on-year. OPERATING RESULTS
Despite the challenging business environment in 2022, I am delighted to report that our company recorded a total Gross Premium Written of N15.2billion in 2022 over N12.7billion recorded in 2021 representing a 20% increase. The Underwriting Profit grew by over 10% from N2.4billion in year 2021 to N2.7billion in 2022. In the same vein, the company achieved Profit Before Tax of N962million as against N885million recorded in year 2021 representing an increase of 9%.
The size and quality of our balance sheet improved as the total assets of the company increased from N16.4billion to N17.4billion r e p r e s e n t i n g a 6 % g r o w t h w h i l e t h e shareholders Fund increased by 8.6% from N9.6billion in 2021 to N10.4billion in 2022. Our company has continued to affirm its commitment and capacity to honour all claims as and when due. The company in 2022 settled claims totaling N3.2billion to various policyholders spread across the country.
It will delight you to know that our Retained Earnings finally moved from a negative position of N236.1million in 2021 to a positive position of N145.8million in 2022, representing a 162% growth. This has put us in a good stead to resume dividend payment in the near future.
Regardless of the level of uncertainties and dynamics in the business and macroeconomic environment, our commitment remains strong to continuously maintain and build on our market share while remaining the prime choice in all our product lines. The tenacity of the Sovereign Trust team in achieving aggressive revenue generation is unwavering and we will continue to pursue it with renewed vigour.
CAPITALIZATION
May I also use this opportunity to remind you all of our ongoing Rights Issue and we are all expected to take up our rights as shareholders of the company. Let me equally state that the Rights Issue is on the basis of one (1) ordinary share for every four shares (4) held. It is also important to note that achieving success in the offer will increase our capital base and boost the company’s capacity to attract and retain more business which will drive revenue generation and equally support our investment portfolio. On completion of the Rights Issue, our paid-up capital will increase to N7.1billion which will move us closer to our N10billion target.
FUTURE OUTLOOK
The global economy is expected to decline from 3.4% in 2022 to 2.8% in 2023. Advanced economies are expected to witness a pronounced slowdown in growth from 2.7% in 2022 to 1.3% in 2023. However, according to the International Monetary Fund (IMF), Nigeria’s economy is expected to grow at the rate of 3.2% in 2023, although, debt levels still remain high which will make it difficult for fiscal policymakers to respond adequately to new economic challenges.
With the change of administration in the country, it is expected that economic reforms that will stimulate growth will be put in place with a view to attracting Foreign Direct Investments while also building the confidence of the business community in the country.
Against this background, Sovereign Trust Insurance Plc, will continue to harness all our resources both financial and human, in taking advantage of the opportunities that the insurance market will avail us for future growth and profitability. We also plan to continue delighting our shareholders and stakeholders alike. Undoubtedly, we understand the terrain and are poised to face the challenges headlong as we have done in almost three decades of our existence in the Nigerian Insurance landscape. We will continue to pursue our strategic plans in every area of our operations as we aspire to attain the position of one of the most vibrant and dynamic insurance companies in Nigeria. Our uncompromising stance of using technology to drive our processes and fortify our business still remains at the core of our growth agenda and we will not relent on this as we pursue our goals and objectives in the years ahead.
Having identified the importance of developing unique products and services as game changers in generating more revenue, we have in the past year begun the process of establishing strategic alliances with some carefully selected organizations with a view to expanding our reach and delivering our products and services beyond the brick-and mortar space. Furthermore, we recently obtained the approval of NAICOM to offer to the insuring public, our brand of Travel Insurance which covers trips for tourism, business, pilgrimage, vacations, and studies. Suffice to say that we have also deployed technology to make the buying experience seamless for our customers.
CONCLUSION
Despite the various challenges in both the global and domestic terrains with regards to the socio-economic and political order, we remain undaunted in pursuing our aspirations as a going concern with so much room for improvement in the days and years ahead. We see the glass as half full and we are determined to make it one that is full of opportunities as we forge ahead.
With the change of baton in the administration of affairs in the country, we look forward to a buoyant Nigeria in all aspects of our lives and businesses just as we expect that our economy will become more robust in providing opportunities for the insurance industry and our dear company in particular. We are committed to keep adapting and reinventing the wheels of progress to align with our strategic focus of increasing the company’s market share and profitability in the year 2023 and beyond. Distinguished shareholders, ladies and gentlemen, I want to acknowledge and sincerely appreciate our team's unrelenting effort and commitment to duty in 2022. I equally thank our various stakeholders for their confidence in the company and assure you that our future remains promising and bright. My great and unreserved gratitude goes to our Policyholders whose loyalty and patronage have been our anchor in maintaining a prominent position in our chosen market over the years.
To my colleagues on the Board, I sincerely appreciate your dedication and wise counsel, which has contributed immensely to making 2022 a success. To our shareholders, I cannot but reassure you of the great aspiration of our company in taking a position of leadership in the industry. We believe that the actualization of our corporate objectives is most crucial and we would take nothing for granted in achieving our goals.
Thank you and God bless.
OLUSEUN O. AJAYI
CHAIRMAN