Despite N1.4bn Equity Injection, Sovereign Trust Insurance’s Risk Retention Unimproved

Sovereign Trust Insurance Plc has received the N1.4 billion new money it asked for from shareholders but not yet the enhanced underwriting risk retention capacity, which the equity injection was expected to provide.

The company’s management accounts for the full year ended December 2023 show a risk retention rate of 47 percent, just inching up from 46.5 percent in the preceding financial year.

Of the gross premium income of over N19 billion the company generated in 2023 operations, it was able to retain N9 billion while a greater portion of the business was ceded to reinsurers.

While the net premium figure is an improvement of 30 percent in the year over the N6.9 billion in 2022, the risk retention rate has not seen the leap needed to gear up profit delivery appreciably.

The Olaotan Soyinka-led management of the general business underwriting firm doesn’t seem to have all the internal capacity enhancement for risk retention of his dream, particularly in the light of the much-deflated local currency value of the capital injection.

Profit improvement remained weak in the year at an increase of less than 13 percent to N947 million compared to about 28 percent growth in gross premium income.

The closing profit figure for 2023 operations remains down from the 2021 record of N974 million which dropped to N838 million in 2022.

Profit improvement in the year is about one-half of the 25 percent rise in the volume of shares that follows a rights issue of one for four concluded in the year.

Earnings per share therefore went down in the year from 7 kobo to 6 kobo – too low to offer a decent return to shareholders quite eager to reap after two major equity capital injections in four years.

The company’s outstanding shares have expanded by 2.84 billion new shares rolled out in a rights issue of one for four in 2023 to 14.2 billion.

Soyinka has succeeded in bringing the company out of years of accumulated losses and built retained earnings of N145 million in 2022 – which grew further to N508 million at the end of 2023.

The increase in retained earnings plus the N1.4 billion rights issue proceeds has raised the company’s equity base from N10.4 billion in 2022 to N12.8 billion at the end of 2023.

The company’s low-risk retention capacity stems from accumulated losses over the years, which impaired equity resources and limited underwriting capacity.

It is apparent from 2023 operations that how to match the company’s strength in generating business with the ability to retain it remains a challenge. And on this challenge hangs the critical momentum needed to drive profit strong enough to excite shareholders.

The company’s report shows that fee and commission income was flat at about N887 million and net underwriting income grew by 26.7 percent to N9.9 billion at the end of the year.

Pressure from claims and underwriting expenses claimed a good part of the gains in net underwriting income.

At N2.9 billion in the full year, claims expenses rose by 20.6 percent and underwriting costs grew by 41 percent to almost N4 billion over the same period.

With the cost increases, underwriting profit improved moderately by 16.7 percent to N3 billion and investment income made an upward creep of 4 percent to N698 million at the end of the year.

Operating and administrative expenses claimed all the increase in net insurance and investment result of N3.8 billion and left operating profit flat at N1.2 billion.

However, two critical factors made the difference, which are foreign exchange gains of almost N36 million and a big drop in finance costs from N266 million to N56 million over the period.

Pre-tax profit went up by 25.8 per cent to N1.2 billion but after-tax profit improved at a much slower pace of under 13 per cent to N947.5 million for the 2023 financial year.