CHAIRMAN’S STATEMENT
Distinguish shareholders, my colleagues on the Board, invited guests, ladies and gentlemen. It is once again my pleasure to welcome you to the 12th Annual General Meeting of our Company and to lay before you, the Annual Reports & Account for the period ended 31st December, 2006. I will also be presenting our Company’s outlook for the 2007 financial year.
BUSINESS ENVIRONMENT
The 2006 financial year was a landmark for the Nigerian financial services industry on account of comprehensive economic reforms, privatization, banking & insurance consolidation.
Political issues such as constitutional amendment, ethno-religious crises, as well as youth restiveness in the Niger Delta presented the government with a major security challenge.
Despite these vulnerabilities, the country recorded some milestones during the period under review especially on the economic front. Appreciable progress was recorded in prosecuting government’s anti-graft policies. In addition, the successful liquidation of the nation’s external debt stock owed to the Paris Club of creditors and the debt relief of USD18 billion helped to rebuild confidence in the Nigerian economy.
In furtherance to its goal of strengthening the private sector government took the bold step of privatizing a number of state owned enterprises. The desire of the banking sector to participate in the management of the nation’s external reserves necessitated some banks to re-approach the capital market for funds to further strengthen their capital base.
The enhanced external reserves position improved CBN’s ability to meet the supply needs of the Dutch Auction System (DAS). This reduced the volatility associated with the naira’s exchange rate while its value appreciated against major currencies, thereby contributing to stability in the macro-economic environment.
The economy recorded a lower rate of inflation during the period although the GDP growth rate was 6% compared with the estimated 7% contained in the 2006 budget.
INSURANCE INDUSTRY REVIEW
During the year under review, our company steadfastly continued in our tradition of achieving excellence in service delivery and surpassing customers’ expectation. The consolidation programme initiated by the Federal Government of Nigeria and driven by the National Insurance Commission (NAICOM) brought about a spate of merger and acquisition amongst industry players. Fresh funds were also injected through Private placement, public offers, and foreign direct investments. These efforts are expected to enhance the sector’s underwriting capacity and profitability.
The industry witnessed a transfer of pension business to pension fund Administrators and Pension Fund Custodians. This was traditionally the exclusive preserve of the insurance sub-sector. General insurance business continued to face stiff competition with declining premium rates and consequent effect on profit margin. We are however committed to maintaining our strong position in the industry despite increased competition arising from a weak demand for insurance.
Though the year under review witnessed severe constraints arising from heightened competitive pressure and resistance to insurance, we were able to positively respond to emerging business opportunities arising from government local content policy in the Oil & Gas sector of our economy.
OPERATING RESULTS
Despite the challenging operating environment of year 2006, your company generated a Gross Premium of N1.4 billion as against N1.02 billion in year 2005 thereby resulting in an increase of 38.7% while Net Premium Written grew by 29.5% from N881.7 million in 2005 to N1.1 billion during the year under review.
Profit before tax grew by 53% from N175.16 million in 2005 to N268.52 million in 2006 while profit after tax was N233.8 million as against N157.65 million recorded in the preceding year.
Our Company significantly increased its shareholders’ fund by 97% from 806 Million in the previous year to N1.59 billion in 2006. It is also pertinent to note that Total assets rose by 70% to N2.23 billion from N1.31 billion in the year 2005. This is a demonstration of our unalloyed commitment to increasing shareholders value.
DIVIDEND
In line with our commitment to delivering superior returns to shareholders, the board is pleased to recommend for your approval, a dividend of N142.25 million representing 6k per share subject to deduction of appropriate with-holding tax. This is payable to shareholders contained in the registers of shareholders as at June 19, 2007.
BOARD CHANGES
With the successful completion of our merger arrangement under the recapitalization and consolidation programme in the insurance industry, I am pleased to welcome to the Board as new directors of our Company, Dr. Steve Azaiki, Mr. Sola Adebayo and Sir Ogala Osoka who were nominated to represent the interest of Bayelsa State Government, shareholders of former Confidence Insurance PLC and Coral International Insurance Company Limited respectively. Mr. Kolapo Lawson will now be representing the interest of Lawson Corporation Limited while we thank Mr. Femi Odebunmi for his meaningful contributions to the growth of the organization.
With the impressive track record of professional and business achievements of members of the new Board, in addition to a tested and trusted management team, I strongly believe that their presence on our Board and injection of their wealth of experience will further strengthen your Company and increase the fortune of our business. Please join me in welcoming them to the Sovereign Trust family.
FUTURE PROSPECTS
The economic prospects for Nigeria remain good in the long term. The growing business confidence in Nigeria coupled with the debt relief and on going economic reforms would offer new growth would offer new growth opportunities.
In addition, the enthronement of democracy would lead to increased investment prospects which imply growth for the insurance industry.
It is also quite obvious that the future of insurance business is bright in Nigeria especially with Government expected implementation of 45% local content policy in the Oil and Gas sector which will significantly boost insurance income. We have taken Strategic steps to strengthen our push for a huge chunk of this emerging market and are currently one of the leading oil and gas underwriters in the nation.
Going forward, plans are at an advanced stage to go into corporate venturing through establishment of subsidiaries. You will see a bigger and financially stronger Sovereign Trust, still retaining its core values while consolidating on our history of stable business and rapidly expanding operations with consistent superior returns on investments.
CONCLUSION
Distinguished ladies and gentlemen, let me express my sincere appreciation to various policyholders, brokers and agents for their unflinching and continued business support over the years; our shareholders for their confidence in the Company; and to management and staff whose unrelenting dedication and hard work during the year have made these excellent results possible.
To my colleagues on the Board, I owe a great deal of gratitude for their counsel, insightful thinking and continued guidance.
I thank you all for your kind attention.
CHIEF (DR.) EPHRAIM F. FALOUGHI (OON)
(Thomas Ebiegberi Spiff II)
Chairman