THE GLOBAL ECONOMY
In 2014, the global economy witnessed developments triggered by the major decline in oil prices. According to the International Monetary Fund (IMF), oil prices had crashed by about 55 percent between September and December of that year as the Organization of Petroleum Exporting Countries (OPEC) decided to maintain current production levels. This was despite increase in production by non-OPEC producer countries, especially the United States of America.
Global economic growth rose slightly from 3.25 percent in the second quarter of the year (2014) to 3.75 percent in the last quarter, although there were notable divergences in the growth patterns in the developed economies. Growth in the United States surged ahead of expectations after the initial contraction in the first quarter of 2014. The US unemployment rate also dropped while inflation steadied, reflecting the dollar’s appreciation against the major currencies and the decline in oil prices. In the Euro area, growth fell far short of forecasts in the latter part of the year due largely to declining investments and inflation. The Japanese economy experienced technical recession in the third quarter of 2014 as private domestic demand failed to increase as expected in the wake of a rise in consumption tax rate in the previous quarter.
For the emerging economies and developing commodity exporters, the trend in 2014 was a delay in the projected rebound of most of these economies as the impact of lower oil and commodity prices took a heavy toll on medium-term growth prospects.
In the case of Nigeria, the Nigerian economy recorded slightly improved trend in the key economic indices in the first half of 2014, including a low inflation rate and a stable currency exchange profile. New base levels for computing the Gross Domestic Product (GDP) number were established by the Federal Government through its agency, the Nigeria Bureau of Statistics. With the rebasing, the aggregate size of Nigeria’s GDP was put at $509.97 billion US dollars, making it the largest in Africa! Also during the first half of the year, Nigeria hosted the World Economic Forum for Africa, which held the promise of drawing increased foreign investment to the economy.
However, the positive growth trend in the second half of the year was characterised by high volatility of politics and economy, as oil prices dipped in the international market, thereby reducing the oil revenue to government drastically by as much as 50 percent. The economy also witnessed increased outflow of portfolio funds, massive drop in the pricing of stocks in the stock market, a significant fall in external reserves as well as steady depreciation in the value of the Naira.
Arising from the negative developments, market capitalisation on the Nigeria Stock Exchange closed for the year 2014 at N11.49 trillion, representing a drop of about 13.5 per cent compared to the N13.23 trillion recorded in December 2013.
According to the National Bureau of Statistics, the economy maintained its single-digit consumer inflation rate, for the second year in a row. From the 8 percent recorded at the beginning of the year, the rate dropped to an all-year low of 7.7 percent in February; peaked at 8.5 percent in August before ending the year at 8 percent, a trend which reflected the relative stability in the domestic price level arising from the tight monetary policy measures introduced by the Central Bank of Nigeria during the year.
The real GDP was estimated at 5.94 percent in 2014, which was about 0.83 per cent lower than the 6.77 percent recorded for the previous year. The growth in GDP was driven largely by the non-oil sector which grew by 6.4 percent compared to the 1.8 percent growth achieved by the oil sector. The non-oil sector witnessed increased diversification into strong growth areas like telecommunications, manufacturing and services.
THE NIGERIAN INSURANCE INDUSTRY
In 2014, the insurance industry witnessed increased efforts by its regulator, the National Insurance Commission (NAICOM), to boost customer confidence and curb unhealthy market practices. Early in the year, NAICOM released a circular on Commissions, Rebates and Returned Premium with the aim of putting in place the standards for policy contracts whilst also protecting policyholders and the general public.
In addition, the Commission held different consultative and interactive forums for insurance operators and shareholders on one hand, as well as for operators and policyholders as part of efforts to improve service delivery in the industry and to boost awareness of the benefits of insurance.
According to NAICOM, the industry recorded Gross Premium of N302.105 billion in 2014 and total assets of N711.4 billion. The industry’s Liability for the year totalled N422.7 billion while Shareholders Funds stood at N352.5 billion.
However, the industry was adversely impacted by the contraction suffered by the Nigerian economy as a result of the crash in oil prices, the capital market’s dwindled performance and the non-review of the provisions for investments as contained in the Insurance Act.
The challenges which our Company faced in 2013 continued in 2014 even as we made vigorous efforts to mitigate the adverse impacts of some regulatory measures, particularly the “No Premium No Cover” policy introduced by NAICOM in the preceding year. As I noted in my statement last year, IGI Plc, being a major public sector insurance player, continued to experience reduced gross premium figures as the public sector was yet to implement its obligations under the policy.
The Company recorded a Gross premium income of N5.424 billion in 2014, showing a 12% reduction in the N6.132 billion posted in 2013. There was an increase of 22% in the Net premium income which rose from N3.942 billion in the previous year to N4.819 billion.
Also, the Underwriting profit grew by 268% to N1.704 billion as against N1.015 billion in 2013. Similarly, Investment income increased to N528.421 million, representing 164% growth over the N200.249 million achieved in 2013.
Management expenses dropped by 10% from N2.043 billion in 2013 to N1.833 billion. However, Impairment provision for receivables and investments was N2.459 billion compared to N770.217 million in the previous year, which is an increase of 219%. This impacted negatively on the result of the Company which posted a loss before taxation of N3.787 billion, amounting to an increase of 76% over the N2.188 billion recorded in 2013.
I am pleased to note, however, that the Company has taken strategic steps to address the unfortunate trend, including restructuring of its investments from a robust long term portfolio to a more liquid balance. This will improve profitability and cash flow as well as enable the Company to meet its obligations to policyholders and other stakeholders.
The Company’s total assets reduced by 5% from N32.708 billion in 2013 to N31.034 billion in the year under review. This is largely due to the impairment provisions of receivables and investment recorded in 2014. As a result of the increase in Investment Contract Liabilities, the total liabilities rose by 6% to N20.304 billion as against N19.162 billion in 2013.
Shareholders’ fund dropped to N10.73 billion from the N13.55 billion achieved in 2013. The decline is attributable to the loss of N3.65 billion incurred during the year as a result of the impairment provisions in the statement of profit or loss and other comprehensive income.