Sovereign Trust Insurance start year with profit despite premium drop

Sovereign Trust Plc started the year with a 21.80 percent rise in first quarter profit despite the Nigerian insurer’s lower premium income.
Profit was N179.57 million as at the first quarter of 2015, compared with N140.41 million the previous year, the Lagos-based company said in an e-mailed statement on the website of the NSE.
While the company’s bottom line improved, its operating and underwriting expenses swallowed most of revenue as the ratio of profit to expenses was 72.31 percent, an increase from 57 percent recorded last year.
This simply means that for every N1 of revenue the company generated, it spent 72.31 percent on costs. Analysts have suggested a cost control measure as way of increasing profits and adding to share holder’s wealth.
Sovereign Trust’s percent 21.20 percent drop in gross premium written (GPW) to N2.42 billion in 2015 from N2.93 billion last year, highlights the woes of insurers in Africa largest oil producer where insurance penetration is low and abysmally poor.
The company’s gross premium income was down by 17.10 percent to N2.20 billion in the period under review as against N2.57 billion the previous year. Net premium income (NPI) moved by a single digit 1.70 percent to N1.73 billion.
Some insure say the ‘No premium No Cover’ policy by NAICOM is a drain on their top line.
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.
Apart from under-performing some of its peers in sub Sahara Africa in terms of contribution to the GDP, over 85 percent of insurance company quoted on the floor of the exchange have market price stagnant at N0.50.
For instance, Sovereign Trust’s market price has been fixated at N0.5 since 2013 when it closed at N0.55.
Analysts say a round of mergers and acquisition with benefits of synergy is a possible solution in strengthening the sector, increase its contribution to the Nigeria economy.
Sovereign Trust’s net underwriting profit increased by 0.2 percent to N1.90 billion while shareholder’s fund moved by 21.34 percent to N4.32 billion in 2015 as against N3.56 billion last year.
Total assets jumped by 5.51 percent to N8.36 billion in 2015 compared with N7.95 billion in 2014.
Total claims and underwriting expenses rose by 3.07 percent to N1.26 billion 2015 as against N1.30 billion last year. Management expenses grew by 26.30 percent to N498.80 million in the period under review.
Sovereign Trust has negative reserves of N1.39 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 the company has incurred more losses in its existence than profits. So basically, it’s not a good sign.
The company has 8.34 billion shares outstanding while market capitalization was N4.17 billion.