Sovereign Trust Insurance Plc is wallowing in rising operating and underwriting expenses that dented bottom line as the company ended 2014 financial year with a 68.30 percent drop in net income.
Profit was N294.49 million in 2014, compared with N929.92 million in the previous year, the Lagos-based company said in an e-mailed statement on the website of the NSE.
Profit before tax shrank by 62 percent to N326.02 million.
Sovereign Trust’s flagging growth at the bottom line was due to its rising operating and underwriting expenses that undermine profits, leaving the insurance firm with low margins.
Total operating and underwriting expenses was up by 22.41 percent to N4.86 billion, compared with N3.97 billion in 2013.
The 4.86 billion costs figure is 97.20 percent of net underwriting income and 66.75 percent of gross premium written.
Insurers in Africa largest economy have had copious expenses that eat most of their revenues as companies like Staco Insurance, Niger Insurance, Aiico Insurance, UnityKapital Assurance, Lasaco, Goldlink Insurance, Great Nigeria Insurance, Nem Insurance, Cornerstone Insurance, Equity Asssurance, Continental Reinsurance, Regency Assurance, and Mansard Insurance recorded low profit margins.
This explains their low market cap on the floor of the NSE.
Since the beginning of the year, Sovereign Trust market price has been fixated at N0.50.The last time it shares were higher was in 2013 when it hit N0.55.
Despite rules enforced by regulators to improve premium of insurers, Sovereign Trust recorded a 16.0 percent reduction in gross premium written to N7.28 billion in the period under review.
Gross premium income rose by a mere 2.90 percent to N7.65 billion while net premium income moved by a single digit 6.90 percent to N4.60 billion.
National Insurance Commission (NAICOM) the Apex body that regulates insurance business in Nigeria introduced the ‘No Premium No Cover’ policy to deepen insurance penetration.
This is a section of the 2003 Insurance ACT that stipulates that Premiums must be paid for before an insurer can incept cover. The regulator has enforced rules requiring companies with at least five workers to provide life coverage.
Sovereign Trust total assets increased by 1.80 percent to N8.49 percent while shareholder’s fund grew by 19.51 percent to N4.16 billion.
The company has negative reserves of N1.48 billion which jeopardizes its ability to pay dividend to shareholders.
The accumulated deficit happens when cumulative losses are greater than cumulative profits causing the account to have a negative or debit balance.
This means Sovereign Trust has incurred more losses in its existence than profits.
Sovereign Trust could not utilize shareholder’s resources in generating higher profits as Return on equity (ROE) fell to 7.08 percent in 2014 as against 26.60 percent in 2013.
The company has 8.34 shares outstanding while market capitalization was N4.17 billion.
BAL AUGIE
