Distinguished shareholders, fellow Board members, representatives of regulatory bodies present, ladies and gentlemen, I am pleased to welcome you all to the 28th Annual General Meeting of our Company and to present the Annual Report and Financial Statements of our Company for the year ended December 31st, 2014.
Business and operating environment
Global growth in 2014 was lower than initially expected, continuing a pattern of disappointing out-turns over the past several years. Growth picked up only marginally in 2014 to 2.6 percent, from 2.4 percent in 2013. Beneath these headline numbers, increasingly divergent trends are at work in major economies. The global economy is still struggling to gain momentum as many high-income countries continue to grapple with legacies of the global financial crisis and emerging economies are less dynamic than in the past.
Recently, the International Monetary Fund downgraded its outlook for more than a dozen of the world’s largest economies. The fund said global growth would be 0.3 percentage point lower this year and next than it had previously expected. It now expects the world economy to expand 3.5 percent in 2015 and 3.7 percent in 2016.
Economic growth in Sub-Saharan Africa (SSA) rose from 4.7 percent in 2013 to a forecasted 5.2 percent in 2014. This performance was boosted by rising investment in natural resources and infrastructure, and strong household spending, according to the World Bank’s new Africa’s Pulse, a twice-yearly analysis of the issues shaping Africa’s economic prospects. GDP growth in Africa in 2015 is projected at 4.4 percent. A positive growth outlook for Africa is strongly dependent on improved institutional performance and better governance
The Nigerian economy advanced 5.94 percent year-on-year in the last three months of 2014, slightly down from a 6.23 percent increase in the previous period. It is the lowest figure in five quarters due to a slowdown in the services sector.
Increasing competition and lower underwriting margins were witnessed in the global reinsurance market, putting pressure on companies. In response to these pressures, companies that are managing the reinsurance cycle continue to reduce their retained exposure to classes of business that do not meet acceptable return hurdles, and they are expanding in classes that offer better opportunities. In 2014, this led to significant reductions in reinsurance books of business, particularly for property catastrophe. For the most part, 2015 is expected to produce an even more careful approach to risk selection.
The market is expected to remain challenging in 2015, with rates continuing to decline for some lines of business, terms and conditions becoming even broader, and ceding commissions increasing further. With new capital and reduced reinsurance purchasing by some large cedants, market conditions are expected to remain challenging for the reinsurance business in 2015 and lead to further pressure on pricing, particularly in property and catastrophe cover lines. As premiums continue to decline, with investment returns remaining low, reserve releases tapering, and commissions increasing, it is expected to be increasingly challenging to deliver double-digit ROEs. Margin compression will likely persist as third-party alternative capital seeks a larger piece of the pie.
The African insurance and reinsurance market continues to attract close scrutiny and rising interest from financial markets participants around the world. This market is thus gearing up for sustained growth.
In the Nigerian insurance market, there exists significant opportunities for consolidation to enable greater risk retention and enhancement of technical capacity as well as attract extra funding that would result in insurance companies taking up larger ticket risks.
The Nigerian insurance industry has become a ‘rich hunting ground for investors’ and is set for growth on the back of improvement access to credit, adoption of innovative insurance products, intense regulatory pressure, and retail segment penetration that should contribute significantly to growth in insurance premium and underwriting profitability. Improved regulation and supervisory activity notably the enforcement of the “no premium no cover” principle to address the scourge of doubtful receivables are positive elements.
The Company’s performance in 2014 was mixed. Attainment of growth targets and operational performance as initially envisioned were constrained by negative exchange rate movements of a number of African currencies against the Naira and significant devaluation of the Naira against the US Dollar late in the fourth quarter, which opened at USD/NGN165.48 in the inter-bank market depreciating by 10.88 percent to close at USD/NGN183.48 due to reversal of foreign flows.
Concurrently, there was non-recurring weakening of certain key indices emanating from remediation of legacy business-process inefficiencies as part of alignment of these in line with overall objectives and the need to comply with industry standards particularly enforcement of the “no premium no cover” standard in debtors’ management.
While Gross Premium Income (GPI) grew from NGN15.86 billion in 2013 to NGN16.44 billion in 2014, net income dropped as the payment of substantial additional back duty taxes aggravated the scenario already negatively influenced by the factors cited.
A breakdown of the GPI shows that while Non-Life premium grew by 10 percent as the Company entrenched its position in key African markets, Life premium came down by 26 percent mainly due to a write-down imposed by the need to comply with the “no premium, no cover” regulatory principle. Profit before tax reduced by 29 percent from NGN2.23 billion in 2013 to NGN1.59 billion in 2014 and profit after tax dipped by 51 percent to NGN856 million in 2014 from NGN1.75 billion in 2013 due to additional back duty taxes levied.
Investment income reduced by 13 percent from NGN1.29 billion in 2013 to NGN1.13 billion in 2014 due principally to the impact of exchange losses. Management and administrative expenses increased by 23 percent from NGN1.91 billion in 2013 to NGN2.35 billion in 2014 influenced by a previously deferred exercise to align staff packages to market norms and also partly due to non-recurring start-up costs for the establishment of the Gaborone subsidiary and the Tunis regional office.
Total assets increased by 8 percent from NGN26.13 billion in 2013 to NGN28.21 billion in 2014 and Shareholders’ Funds increased by 3 percent from NGN14.29 billion in 2013 to NGN14.78 billion in 2014.
Despite the drop in profit recorded for the year, the Board, in line with the Company’s commitment to ensuring returns to shareholders, has resolved to maintain the same level of dividend payout as in the previous year. The Board therefore recommends a cash dividend of 11 kobo per share for the financial year under review subject to your approval.
As stated in my statement for the year 2013, Mr. Gbenga Falekulo, the Executive Director (Life), resigned from the Board with effect from January 29th, 2014 having retired from the services of the Company with effect from January 1st, 2014. There were no other changes on the Board during the year under review.
Our Company is managed by a pool of highly resourceful, competent and motivated professionals. People remain our most valuable asset, therefore, we have put in place a talent management system to ensure availability of the right people who will continue to add value and ensure good returns to shareholders. We have continued to invest heavily in the development of our employees by providing them with world class training opportunities in different areas that are relevant to our business both for now and the future, while we also facilitate trainings for our clients across Africa.
Fellow shareholders, I am pleased to announce to you that with the establishment of our regional office in Gaborone, Botswana in 2014, we have now attained a key milestone in our geographical expansion across Africa in line with our five year strategic plan (2012-2017). With the core building blocks of this plan now in place, we are set for a consolidation and growth phase. We should begin to see the positive upshot of our diversification strategy, being primarily accelerated revenue growth through the deepening of our influence in the markets in which we are now physically represented.
As reported in my statement to you last year, our head office building project was expected to commence in the course of the year, but we experienced some delays in obtaining the necessary approvals. These have now been secured and we shall soon commence work on site.
The 2014 financial year was challenging for our Company, but we believe that we are now positioned for a stronger growth in both our top and bottom lines going into the future.
Let me use this opportunity to thank the Board of Directors, Management and Staff for their unflinching support and commitment to the Company over the years.
Mr. Hurley Doddy