SOVEREIGN TRUST INSURANCE PLC
REPORT OF THE DIRECTORS AND AUDITED FINANCIAL STATEMENTS
CONTENTS PAGE
Corporate Information 2
Financial Highlights 4
Report of the Directors 5
Report of the Audit Committee 13
Statement of Directors’ Responsibilities in Relation to the Preparation of the Financial Statements 14
Certification Pursuant to Section 60 (2) of Investment and Securities Act No. 29 of 2007 15
Independent Auditors’ Report 16
Summary of Significant Accounting Policies 20
Statement of Profit or Loss 47
Statement of Other Comprehensive Income 48
Statement of Financial Position 49
Statement of Changes in Equity 50
Statement of Cash Flows 51
Notes to the Financial Statements 52
Other National Disclosures
Statement of Value Added 103
Five-Year Financial Summary 104 SOVEREIGN TRUST INSURANCE PLC
CORPORATE INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2018
Chairman Mr. Oluseun O. Ajayi Chairman
Directors Mr. Olaotan Soyinka Managing Director/CEO Mrs. Ugochi Odemelam Executive Director Mr. Jude Modilim Executive Director Mr. Oduniyi Odusi Executive Director Ms. Emi Faloughi Non Executive Director Ms. Omozusi Iredia Non Executive Director Mr. Abimbola Oguntunde Non Executive Director Mr. Samuel Egube Non Executive Director Col. Musa Shehu (Rtd), OFRIndependent Director
Company Secretary Equity Union Limited
Register Office 17, Adetokunbo Ademola Street Victoria Island, Lagos, Nigeria www.stiplc.com
Auditors Ernst & Young 10th & 13th Floors UBA House 57 Marina, Lagos
Bankers First Bank of Nigeria Limited Standard Chartered Bank Zenith Bank Plc Access Bank Plc Guaranty Trust Bank Plc Diamond Bank Plc Ecobank Plc Providus Bank Limited First City Monument Bank Limited Fidelity Bank Plc Unity Bank Plc Heritage Bank Plc Sterling Bank Plc Wema Bank Plc
RC No. 31962
Solicitors Citipoint Chambers
Registrar Meristem Registrars Limited
Reporting Actuary Logic Professional Services
2 SOVEREIGN TRUST INSURANCE PLC
CORPORATE INFORMATION - Continued
FOR THE YEAR ENDED 31 DECEMBER 2018
Reinsurers Aveni Reinsurance Company Limited African Reinsurance Corporation Continental Reinsurance Plc WAICA Reinsurance Corporation
Management Team Olaotan Soyinka Managing Director/CEO
Ugochi Odemelam Executive Director, Marketing & Business Development
Jude Modilim Executive Director, Technical Division
Oduniyi Odusi Executive Director, Branch Operation & Business Development
Kayode Adigun GM/Divisional Head, Finance & Administration
Sanni Oladimeji DGM/Head, Risk Management & Compliance
Segun Bankole AGM/Head, Brokers' Department 1
Olalekan Oguntunde AGM/Head, ICT
Emmanuel Anikibe AGM/Head, Brokers' Department 2
Mohammed Alfa AGM/Head, Northern Area Operations
Samuel Oseni AGM/Head, Internal Audit
Angela Uche-Onochie AGM/Head, Eastern Area Operations
3 SOVEREIGN TRUST INSURANCE PLC
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED 31 DECEMBER 2018
in thousands of Nigerian Naira 2018 2017 % Change
STATEMENT OF TOTAL COMPREHENSIVE INCOME
Gross premium written 10 ,513,078 8 ,513,503 23%
Net premium income 5,061,377 3 ,852,522 31%
Net claims expense 1,787,492 1 ,303,145 37%
Profit before income tax 540,554 202,694 167%
Profit after income tax 344,236 157,869 118%
STATEMENT OF FINANCIAL POSITION
Total assets 11 ,321,427 10,817,675 5%
Total liabilities 5,501,072 5 ,345,771 3%
Total equity 5,820,355 5 ,471,904 6%
Insurance contract liabilities 3,088,838 3 ,260,519 -5%
Per Share data: Basic earnings per share (kobo) 4.13 1.89 118%
4 SOVEREIGN TRUST INSURANCE PLC REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2018
1 LEGAL FORM AND PRINCIPAL ACTIVITY
IncompliancewiththerelevantprovisionsoftheCompaniesandAlliedMattersAct,CAPC20LawsoftheFederationofNigeria2004,the InsuranceAct2003,relevantpolicyguidelinesissuedbytheNationalInsuranceCommission(NAICOM)andtheFinancialReporting CouncilofNigeriaActNo.6,2011,theDirectorshavepleasureinsubmittingtothememberstheirreporttogetherwiththeaudited financial statements of Sovereign Trust Insurance Plc ("the Company") for the year ended 31 December 2018.
TheCompanywasincorporatedasalimitedliabilitycompanyon26February1980andcommencedbusinesson2January1995asanon- lifeinsurerwithanauthorizedsharecapitalof ₦30millionandafullypaidupsharecapitalof ₦20millionfollowingtheacquisitionand recapitalization of the then Grand Union Assurance Limited.
TheCompanywhichwaslicensedtocarryoutbusinessinallclassesofNon-Lifeinsuranceandasspecialriskinsurerscurrentlyhas authorizedsharecapitalof ₦5.25billiondividedinto10.5billionunitsof50kobopersharewithapaidupcapitalof ₦4.1billiondivided into 8.3 billion units of 50kobo per share.
TheCompany'scorporateheadofficeisatVictoriaIsland,Lagoswith17otherbranchesspreadacrossmajorcitiesandcommercial centersinNigeria.TheCompanybecameaPublicLimitedCompany(PLC)on7April2004,andwaslistedontheNigerianStockExchange on 29 November 2006.
2 OPERATING RESULTS
in thousands of Nigerian Naira 2018 2017
Gross premium written 10,513,078 8 ,513,503
Net premium income 5 ,061,377 3 ,852,522
Net claims expenses (1,787,492) (1,303,145)
Profit before income tax 540,554 202,694 Income tax expense (196,318) (44,825) Profit after income tax 344,236 157,869
3 DIVIDEND No dividend is proposed in respect of the current year (2017: Nil).
4 BUSINESS REVIEW AND FUTURE DEVELOPMENT
TheCompanycarriedoutinsuranceactivitiesinaccordancewithitsMemorandumandArticlesofAssociation.Acomprehensivereviewof the business for the year and prospects for the ensuing year will be contained in the Managing Director's Report in the Annual Report.
5 SOVEREIGN TRUST INSURANCE PLC REPORT OF THE DIRECTORS - Continued FOR THE YEAR ENDED 31 DECEMBER 2018
5 DIRECTORS
The names of the Directors at the date of this report and of those who held offices during the year are as follows:
Mr. Oluseun O. Ajayi Chairman Mr. Olaotan Soyinka Managing Director/CEO Mrs. Ugochi Odemelam Executive Director Mr. Jude Modilim Executive Director Mr. Oduniyi Odusi Executive Director Ms. Emi Faloughi Non Executive Director Ms. Omozusi Iredia Non Executive Director Mr. Abimbola Oguntunde Non Executive Director Mr. Samuel Egube Non Executive Director Col. Musa Shehu (Rtd), OFR Independent Director
6 DIRECTORS' INTERESTS ThenamesoftheDirectorsandtheirinterestsintheissuedandpaidupsharecapitaloftheCompanyasrecordedintheRegisterof Directors' shareholdings as at 31 December 2018 are as follows:
Number of Number of indirect direct Ordinary Total Total Indirect Representation on Name Ordinary Shares Shares held in 31 Dec 2018 31 Dec 2017 the Board held in 2018 2018
Mr. Oluseun O. Ajayi 244,104,573 318,483,523 562,588,096 562,588,096 Sovereign Investments Ltd Mr. Olaotan Soyinka 1,532,640 - 1,532,640 1 ,532,640 Mrs. Ugochi Odemelam 4,490,321 - 4,490,321 4 ,490,321 Ms. Emi Faloughi 27 ,024,097 821,572,742 848,596,839 848,596,839 TEEOF Holdings Ltd Ms. Omozusi Iredia - 392,282,401 392,282,401 392,282,401 TWSN Limited Mr. Abimbola Oguntunde 642 ,496 - 642,496 642,496 Morning Side Capital Mr. Samuel Egube - 1,575,000,000 1 ,575,000,000 1,575,000,000 Partners Limited Mr. Jude Modilim 2,205,990 - 2,205,990 240 Mr. Oduniyi Odusi - - - - Col. Musa Shehu (Rtd), OFR - - - -
NoneoftheDirectorshasnotifiedtheCompanyforthepurposesofSection277oftheCompaniesandAlliedMattersAct,CAPC20Laws of the Federation Nigeria 2004 of any disclosable interests in contracts in which the Company was involved as at 31 December 2018.
7 COMPLAINT MANAGEMENT POLICY IncompliancewiththeSecuritiesandExchangeCommission(SEC)rulesrelatingtotheComplaintsManagementFrameworkofthe NigerianCapitalMarket,SovereignTrustInsurancePlchasadoptedaComplaintsManagementPolicy.TheCompanyshallreceiveand entertainallShareholders'complaintsarisingoutofissuescoveredundertheInvestmentsandSecuritiesAct(ISA),2007theRulesand RegulationsmadepursuanttotheISA,therulesandregulationsofSecuritiesExchangesandguidelinesofrecognisedtradeassociations as directed.
6 SOVEREIGN TRUST INSURANCE PLC REPORT OF THE DIRECTORS - Continued FOR THE YEAR ENDED 31 DECEMBER 2018
8 ACQUISITION OF OWN SHARES The Company did not purchase any of its own shares during the year.
9 COMPANY'S DISTRIBUTORS TheCompany'sproductsaremarketedbyinsurancebrokersandagentsthroughoutthecountry.TheCompanyalsoemploysthedirect marketing method to source for insurance business.
10 INSURANCE TECHNICAL AGREEMENTS The Company had reinsurance treaty arrangements with the following companies during the year: ● African Reinsurance Corporation ● Aveni Reinsurance Company Limited ● Continental Reinsurance Plc ● WAICA Reinsurance Corporation
11 CORPORATE GOVERNANCE TheCompanymaintainscorporatepoliciesandstandardsdesignedtoencouragegoodandtransparentcorporategovernance,avoid potentialconflictsofinterestandpromoteethicalbusinesspractices.ThebusinessoftheCompanyisconductedwithintegritywhichpays due regard to the legitimate interests of our stakeholders.
12 SECURITIES TRADING POLICY InlinewiththeNigerianStockExchangeamendedrules,SovereignTrustInsurancePlchaspolicyguidingDirectors,officers,key management personnel, contractors and all other employees dealing in the securities of the Company.
ThepolicyaimstoensurethatthereputationoftheCompanyisnotadverselyimpactedbyperceptionsoftradingintheCompany's securities at inappropriate times or in an inappropriate manner.
Thepolicy'sintentionistoensurethatDirectors,officersandotherCompanypersonnelsdonotmakeimproperuseof"pricesensitive information" gained their position or engagement in the Company.
13 EMPLOYMENT AND EMPLOYEES
a Employee Involvement and Training TheCompanyiscommittedtokeepingemployeesfullyinformedasmuchaspossibleregardingtheCompany’sperformanceandprogress. Viewsofemployeesaresought,wherepracticable,onmatterswhichparticularlyaffectthemasemployees.TheCompanyrunsanopen doormanagementpolicy.Management,professionalandtechnicalexpertisearetheCompany’smajorassetsandinvestmentin developingsuchskillsiscontinuous.TheCompany’sexpandingskillsbaseisbeingbroughtaboutbyawiderangeofin-houseandexternal training. Opportunities for career development within the company have also been broadened.
Incentiveschemesdesignedtomeetthecircumstancesofeachindividualareimplementedwhereverappropriateandsomeofthese schemes include staff retirement benefit, productivity bonus, promotion and salary review.
7 SOVEREIGN TRUST INSURANCE PLC REPORT OF THE DIRECTORS - Continued FOR THE YEAR ENDED 31 DECEMBER 2018
13 EMPLOYMENT AND EMPLOYEES - Continued
b Employment of Physically Challenged Persons ItisthepolicyoftheCompanythatthereisnodiscriminationinconsideringapplicationsforemploymentincludingthoseofphysically challengedpersons.Allemployeeswhetherphysicallychallengedornotaregivenequalopportunitiestodeveloptheirknowledgeandto qualify for promotion in furtherance of their careers.
c Health Safety and Welfare at Work TheCompanystrictlyobservesallhealthandsafetyregulations.TheCompanymaintainsbusinesspremisesdesignedwithaviewto guaranteeingthesafetyandhealthylivingconditionsofitsemployeesandcustomersalike.Employeesareadequatelyinsuredagainst occupationalandotherhazards.Financialprovisionisalsomadeforallemployeesinrespectoftransportation,housing,medicalexpenses and meals.
14 EVENTS AFTER THE REPORTING DATE
TherewerenoeventsafterthereportingdatewhichcouldhaveamaterialeffectonthefinancialpositionoftheCompanyasat31 December 2018 or its financial performance for the year then ended that have not been adequately provided for or disclosed.
15 EQUITY RANGE ANALYSIS The range of shareholding as at 31 December 2018 is as follows:
Range No. of Holders Percent Unit Percent 1 - 1,000 897 10% 416,903 0% 1,001 - 5,000 1,670 18% 4,956,734 0% 5,001 - 10,000 1,066 12% 7,950,161 0% 10,001 - 50,000 2,853 31% 72 ,150,524 1% 50,001 - 100,000 964 11% 68 ,800,220 1% 100,001 - 500,000 1,173 13% 242,701,459 3% 500,001 - 1,000,000 192 2% 139,391,953 2% 500,001 - 5,000,000 207 2% 432,014,949 5% 5,000,001 - 10,000,000 35 0% 271,029,788 3% 10,000,001 - Above 70 1% 7 ,101,410,605 85% 9,127 100% 8 ,340,823,296 100%
Substantial interest in shares Accordingtotheregisterofmembersas31December2018,noshareholderheldmorethan5%oftheissuedsharecapitalofthe Company excepts as disclosed as follows:
SHAREHOLDERS WITH 5% SHAREHOLDING AND ABOVE
2018 2017 NAME No. of Holding % of Holding No. of Holding % of Holding Morning Side Capital Partners Ltd 1,575,000,000 18.88% 1,575,000,000 18.88% Bayelsa State Ministry of Finance 900,000,000 10.79% 900,000,000 10.79% TEEOF Holsing Ltd 821,572,742 9.85% 821,572,742 9.85% Other 5,044,250,554 60.48% 5,044,250,554 60.48% 8,340,823,296 100% 8,340,823,296 100%
8 SOVEREIGN TRUST INSURANCE PLC
REPORT OF THE DIRECTORS - Continued
FOR THE YEAR ENDED 31 DECEMBER 2018
16 DONATIONS AND SPONSORSHIP
The tax allowable donations and sponsorship made during the year was ₦1,750,000 (2017:₦1,850,000).
For the year ended 31 December 2018 2018 2017
Chartered Insurance Institute of Nigeria 1 ,250,000 450,000 Teenage Life 300,000 - Autism Awareness 200,000 - Igbobi College Old Boys Association - 1 ,000,000 Institute Of Chartered Accountants Of Nigeria - 250,000 Actuarial Science & Insurance Students Association - 100,000 Lagos State University College of Medicine - 50 ,000 1,750,000 1,850,000
17 PROPERTY, PLANT AND EQUIPMENT Information relating to the Company's property, plant and equipment is detailed in the Note 24 to the financial statements.
18 BOARD COMMITTEES TheBoard,incompliancewiththeguidelinesoftheNationalInsuranceCommissioncarriedoutitsoversightfunctionthroughitsstanding committees,eachwhichhasacharterthatclearlydefinesitspurpose,compositionandstructure,frequencyofmeeting,duties,tenure and reporting lines to the Board.
The Board functions through these committees, whose membership are as follows:
a Enterprise Risk Management and Governance Committee 1. Colonel Musa Shehu (Rtd)(OFR) Chairperson 2. Ms. Emi Faloughi Member 3. Mr. Abimbola Oguntunde Member 4. Mr. Samuel Egube Member 5. Mrs. Ugochi Odemelam Member 6. Mr. Niyi Odusi Member
b Finance, Investment and General Purposes Committee 1. Ms. Omozusi Iredia Chairperson 2. Ms. Emi Faloughi Member 3. Mr. Olaotan Soyinka Member 4. Mr. Samuel Egube Member 5. Mr. Abimbola Oguntunde Member 6. Mr. Jude Modilim Member
9 SOVEREIGN TRUST INSURANCE PLC
REPORT OF THE DIRECTORS - Continued
FOR THE YEAR ENDED 31 DECEMBER 2018
18 BOARD COMMITTEES
c Audit and Compliance Committee PursuanttoSection359(3)oftheCompaniesandAlliedMattersAct,CAPC20LawsoftheFederationofNigeria2004,theCompanyhas in place an Audit Committee comprising two shareholders and two Directors as follows:
1. Mr. Babatunde Adaramaja Shareholder Representative - Chairman Appointed 27 September 2018 2. Otunba Femi Dina Shareholder Representative - Chairman Retired 27 September 2018 3. Mr. Emmanuel Oluwadare Shareholder Representative Appointed 27 September 2018 4. Ms. Emi Faloughi Non-Executive Director 5. Ms. Omozusi Iredia Non-Executive Director
ThefunctionsoftheAuditCommitteeareaslaiddowninSection359(6)oftheCompaniesandAlliedMattersAct,CAPC20Lawsofthe Federation of Nigeria 2004.
All the committees endeavoured to perform their duties competently during the the year ended 31 December 2018.
10 SOVEREIGN TRUST INSURANCE PLC REPORT OF THE DIRECTORS - Continued FOR THE YEAR ENDED 31 DECEMBER 2018
19 RECORD OF COMMITTEES ATTENDANCE
a Record of attendance at board meetings for the year 2018
DIRECTORS 26-Mar-18 14-Jun-18 26-Sep-18 14-Dec-18 Mr. Oluseun O. Ajayi Yes Yes Yes Yes Mr. Olaotan Soyinka Yes Yes Yes Yes Mrs. Ugochi Odemelam Yes Yes Yes Yes Mr. Jude Modilim Yes Yes Yes Yes Mr. Oduniyi Odusi Yes Yes Yes Yes Ms. Emi Faloughi Yes Yes Yes Yes Ms. Omozusi Iredia Yes Yes Yes Yes Mr. Abimbola Oguntunde Yes Yes Yes Yes Mr. Samuel Egube Yes Yes Yes Yes Col. Musa Shehu (Rtd), OFR Yes Yes Yes Yes
b Record of attendance at the Finance, Investment & General Purposes Committee meetings for 2018
MEMBERS 11-May-18 27-Jul-18 26-Oct-18 12-Dec-18 Ms. Omo Iredia Yes Yes Yes Yes Ms. Emi Faloughi Yes Yes Yes Yes Mr. Abimbola Oguntunde No Yes Yes Yes Mr. Samuel Egube Yes Yes Yes Yes Mr. Olaotan Soyinka Yes Yes Yes Yes Mr. Jude Modilim Yes Yes Yes Yes
d Record of attendance at the Enterprise Risk Management & Governance Committee meetings for 2018
MEMBERS 13-Jun-18 25-Sep-18 13-Dec-18 Col. Musa Shehu (rtd) (OFR) Yes Yes Yes Ms. Emi Faloughi Yes Yes Yes Mr. Abimbola Oguntunde Yes Yes Yes Mr. Samuel Egube Yes No Yes Mrs. Ugochi Odemelam Yes Yes Yes Mr. Oduniyi Odusi Yes Yes Yes
11
SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1 Corporate Information SovereignTrustInsurancePlc("TheCompany")wasincorporatedasalimitedliabilitycompanyon26February1980,butwas reorganizedandcommencedbusinessasareorganizednon-lifeinsurancecompanyon2January1995withanauthorizedshare capitalof ₦30millionandafullypaidupcapitalofthe ₦20millionfollowingtheacquisitionandrecapitalizationofthethenGrand Union Assurance Limited. The Company was listed on the Nigerian Stock Exchange on 29 November 2006.
Sovereign Trust Insurance Plc is regulated by the National Insurance Commission of Nigeria.
TheprincipalactivityoftheCompanycontinuestobetheprovisionofallclassesofnon-lifeinsuranceandspecialriskinsurance, settlementofclaimsandInsuranceofPolicyHolders’Fund.TheCompanyheadofficeisat17AdemolaAdetokunboStreet, Victoria Island, Lagos with 17 other branches spread across major cities.
2 Summary of significant accounting policies
2.1 Introduction to summary of significant accounting policies Theprincipalaccountingpoliciesappliedinthepreparationofthese financialstatementsaresetoutbelow.Thesepolicieshave been consistently applied to all the periods presented, unless otherwise stated.
2.2 Basis of presentation and statement of compliance with IFRS
These financialstatementshavebeenpreparedinaccordancewiththeInternationalFinancialReportingStandards(IFRS)issued bytheInternationalAccountingStandardsBoardandIFRSInterpretationsCommittee(IFRIC)forInterpretationsapplicableto companies reporting under IFRS. Additional information required by national regulations has been included where appropriate.
Thepreparationofthesefinancialstatementshavebeenbasedonthehistoricalcostbasisexceptforinvestmentproperties, buildingandcertainfinancialinstrumentsthataremeasuredatrevaluedamountsorfairvalues,asexplainedintheaccounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
InaccordancewithIFRS4InsuranceContracts,theCompanyhasappliedexistingaccountingpoliciesforNon-lifeinsurance contracts, modified as appropriate to comply with the IFRS framework.
ThepreparationoffinancialstatementsinconformitywithIFRSrequirestheCompany’sBoardofDirectorstoexerciseits judgmentinapplyingtheCompany’saccountingpolicies.Theareasinvolvingahigherdegreeofjudgmentsorcomplexity,orareas where assumptions or estimates are significant to the financial statements are as disclosed in Note 3.
ThefinancialstatementsofSovereignTrustInsurancePlchavebeenpreparedonagoingconcernbasis.TheDirectorsofthe CompanyhaveareasonableexpectationthattheCompanyhasadequateresourcestocontinueinoperationalexistenceforthe foreseeable future.
2.3 Presentation currency ThefinancialstatementsarepresentedinNigerianNaira(₦)andareroundedtothenearestthousand(‘000)unlessotherwise stated.
2.4 Foreign currencies
Transactions and balances Transactionsincurrenciesotherthantheentity'sfunctionalcurrency(foreigncurrencies)arerecognizedattheratesofexchange prevailingatthedatesofthetransactions.Attheendofeachreportingperiod,monetaryitemsdenominatedinforeigncurrencies are translated at the rates prevailing at that date.
Non-monetaryitemsthataremeasuredintermsofhistoricalcostinaforeigncurrencyaretranslatedusingtheexchangerateas atthedateoftheinitialtransactionandarenotsubsequentlyrestated.Non-monetaryitemsmeasuredatfairvalueinaforeign currencyaretranslatedusingtheexchangeratesatthedatewhenthefairvalueisdetermined.Thegainorlossarisingon translationofnon-monetaryitemsmeasuredatfairvalueistreatedinlinewiththerecognitionofagainorlossonchangeinfair valueoftheitem(i.e.,translationdifferencesonitemswhosefairvaluegainorlossisrecognisedinothercomrehensiveincome (OCI) or profit or loss are also recognised in OCI or profit or loss, respectively).
21 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.4 Foreign currencies - Continued
Functional currency ItemsincludedinthefinancialstatementsoftheCompanyaremeasuredusingthecurrencyoftheprimaryeconomicenvironment inwhichtheCompanyoperates(the“functionalcurrency”).TheCompanyisincorporatedinNigeriaandhasadoptedtheNairaas its functional currency.
2.5 Changes in accounting policies and disclosures
New and amended standards and interpretations Inthesefinancialstatements,theCompanyhasappliedIFRS9andIFRS7RandIFRS15effectiveforannualperiodsbeginningon orafter1January2018,forthefirsttime.TheCompanyhasnotearlyadoptedanyotherstandard,interpretationoramendment that has been issued but is not yet effective.
IFRS 9 Financial instruments TheCompanyhasadoptedasissuedbytheIASBwithatransitiondateof1January2018.IFRS9replacesIAS39forannual periodsonorafter1January2018.TheCompanyhasnotrestatedcomparativeinformationfor2017forfinancialinstrumentsin thescopeofIFRS9.Therefore,thecomparativeinformationfor2017isreportedunderIAS39andisnotcomparabletothe informationpresentedfor2018.DifferencesarisingfromtheadoptionofIFRS9havebeenrecogniseddirectlyinretained earnings as of 1 January 2018 and are disclosed in Note 5.
Changes to classification and measurement Todeterminetheirclassificationandmeasurementcategory,IFRS9requiresallfinancialassets,exceptequityinstrumentsand derivatives,tobeassessedbasedonacombinationoftheentity’sbusinessmodelformanagingtheassetsandtheinstruments’ contractual cash flow characteristics.
TheIAS39measurementcategoriesoffinancialassets(fairvaluethroughprofitorloss(FVPL),availableforsale(AFS),held-to- maturity and loans and receivables) have been replaced by: • Debt instruments at amortised cost •Debtinstrumentsatfairvaluethroughothercomprehensiveincome(FVOCI),withgainsorlossesrecycledtoprofitorlosson derecognition • Equity instruments at FVOCI, with no recycling of gains or losses to profit or loss on derecognition • Financial assets at FVTPL
The accounting for financial liabilities remains largely the same as it was under IAS 39.
TheCompany’sclassificationofitsfinancialassetsandliabilitiesisexplainedin Notes2.7. Thequantitativeimpactofapplying IFRS 9 as at 1 January 2018 is disclosed in Note 5.
IFRS 9 Financial instruments
Changes to the impairment calculation TheadoptionofIFRS9hasfundamentallychangedtheCompany’saccountingforlossimpairmentsbyreplacingIAS39’sincurred lossapproach(withtheexceptionofinsurancerelatedassetswhichisnotwithinthescopeofIFRS9justyet)withaforward- lookingexpectedcreditloss(ECL)approach.IFRS9requirestheCompanytorecordanallowanceforECLsforloansandother debtfinancialassetsnotheldatFVPL.TheallowanceisbasedontheECLsassociatedwiththeprobabilityofdefaultinthenext twelve months unless there has been a significant increase in credit risk since origination.
Details of the Company’s impairment method are disclosed in Note 2.7.8 The quantitative impact of applying IFRS 9 as at 1 January 2018 is disclosed in Note 5.
IFRS 7R ToreflectthedifferencesbetweenIFRS9andIAS39,IFRS7FinancialInstruments:DisclosureswasupdatedandtheCompany hasadoptedit,togetherwithIFRS9,fortheyearbeginning1January2018.Changesincludetransitiondisclosuresasshownin Note5,detailedqualitativeandquantitativeinformationabouttheECLcalculationssuchastheassumptionsandinputsusedare set out in Note 3 (note on significant estimates) and Note 42 to the financial statements.
Reconciliations from opening to closing ECL allowances are presented in Notes 5 (Transitional disclosures).
22 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.5 Changes in accounting policies and disclosures - Continued
IFRS 15 Revenue from contracts with customers TheCompanyadoptedIFRS15Revenuefromcontractswithcustomersonitseffectivedateof1January2018.IFRS15replaces IAS18Revenueandestablishesafive-stepmodeltoaccountforrevenuearisingfromcontractswithcustomers.Itappliestoall contracts with customers except leases, financial instruments and insurance contracts.
Thestandardestablishesamoresystematicapproachforrevenuemeasurementandrecognitionbyintroducingafive-stepmodel governingrevenuerecognition.Thefive-stepmodelrequirestheCompanyto(i)identifythecontractwiththecustomer,(ii) identifyeachoftheperformanceobligationsincludedinthecontract,(iii)determinetheamountofconsiderationinthecontract, (iv)allocatetheconsiderationtoeachoftheidentifiedperformanceobligationsand(v)recogniserevenueaseachperformance obligation is satisfied.
TherearenosignificantimpactsfromtheadoptionofIFRS15inrelationtothetimingofwhentheCompanyrecognisesrevenues orwhenrevenueshouldberecognisedgrossasaprincipalornetasanagent.Therefore,SovereignTrustInsurancePlcwill continuetorecognisefeeandcommissionincomechargedforservicesprovidedbytheCompanyastheservicesareprovided(for exampleoncompletionoftheunderlyingtransaction).Revenuerecognitionfortradingincomeandnetinvestmentincomeare recognisedbasedonrequirementsofIFRS9.Inaddition,guidanceoninterestanddividendincomehavebeenmovedfromIAS18 to IFRS 9 without significant changes to the requirements.
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Considerations TheInterpretationclarifiesthat,indeterminingthespotexchangeratetouseoninitialrecognitionoftherelatedasset,expense orincome(orpartofit)onthederecognitionofanon-monetaryassetornon-monetaryliabilityrelatingtoadvanceconsideration, thedateofthetransactionisthedateonwhichanentityinitiallyrecognisesthenon-monetaryassetornon-monetaryliability arisingfromtheadvanceconsideration.Iftherearemultiplepaymentsorreceiptsinadvance,thentheentitymustdeterminethe dateofthetransactionsforeachpaymentorreceiptofadvanceconsideration.ThisInterpretationdoesnothaveanyimpacton the Company’s financial statements.
Amendments to IAS 40 Transfers of Investment Property Theamendmentsclarifywhenanentityshouldtransferproperty,includingpropertyunderconstructionordevelopmentinto,or outofinvestmentproperty.Theamendmentsstatethatachangeinuseoccurswhenthepropertymeets,orceasestomeet,the definitionofinvestmentpropertyandthereisevidenceofthechangeinuse.Amerechangeinmanagement’sintentionsforthe useofapropertydoesnotprovideevidenceofachangeinuse.TheseamendmentsdonothaveanyimpactontheCompany’s financial statements.
Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts Theamendmentsaddressconcernsarisingfromimplementingthenewfinancialinstrumentsstandard,IFRS9,before implementingIFRS17InsuranceContracts,whichreplacesIFRS4.Theamendmentsintroducetwooptionsforentitiesissuing insurancecontracts:atemporaryexemptionfromapplyingIFRS9andanoverlayapproach.SincetheCompanyisadoptingIFRS9 prior to IFRS 4 insurance contracts, these amendments are not relevant to the Company.
Other standards that became effective during the year but have no impact on the Company’s financial statements AmendmentstoIFRS2ClassificationandMeasurementofShare-basedPaymentTransactionsAmendmentstoIAS28Investments inAssociatesandJointVentures-Clarificationthatmeasuringinvesteesatfairvaluethroughprofitorlossisaninvestment-by- investment choice.
Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards - Deletion of short-term exemptions for first-time adopters Short-termexemptionsinparagraphsE3–E7ofIFRS1weredeletedbecausetheyhavenowservedtheirintendedpurpose.These amendments do not have any impact on the Company's financial statements.
2.6 Cash and cash equivalents
Cashandcashequivalentsincludecashonhand,depositsheldatcallwithbanksandothershorttermhighlyliquidinvestments with original maturities of three months or less. These assets are readily convertible into known amounts of cash.
2.6.1 Cash and cash equivalents for the purpose of Statement of Cash Flow
Thecashandcashequivalentsforthepurposeofthestatementofcashflowcomprisesofcashonhand,depositsheldatcallwith banks and other short term highly liquid investments with original maturities of three months or less and bank overdraft.
23 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.7 Financial assets
Policy applicable before 1 January 2018
2.7.1 Initial recognition and measurement PriortotheadoptionofIFRS9,theCompanydesignatesfinancialassetstothefollowingIAS39categories:financialassetsatfair valuethroughprofitorloss;held-to-maturityinvestments;available-for-salefinancialassetsandloansandreceivables. Management determines the classification of its financial instruments at initial recognition.
Theclassificationoffinancialassetsdependsonthenatureandpurposeofthefinancialassetsandisdeterminedatthetimeof initialrecognition.Allregularwaypurchasesorsalesoffinancialassetsarerecognizedandderecognizedonatradedatebasis. Regularwaypurchasesorsalesarepurchasesorsalesoffinancialassetsthatrequiredeliveryofassetswithinthetimeframe established by regulation or convention in the marketplace.
Allfinancialassetsarerecognisedinitiallyatfairvalueplus,inthecaseoffinancialassetsnotrecordedatfairvaluethroughprofit or loss, transaction costs that are attributable to the acquisition of the financial asset.
Effective interest method IncomeisrecognizedonaneffectiveinterestbasisfordebtinstrumentsotherthanthosefinancialassetsclassifiedasFairValue Through Profit or Loss (FVTPL).
2.7.2 Financial assets at fair value through profit or loss (FVTPL) - Equity securities Financial assets are classified as FVTPL when the financial asset is either held for trading or it is designated as at FVTPL. Financialassetsheldfortradingincludeequitysecuritieswhichareacquiredprincipallyforthepurposeofgeneratingaprofitfrom short-term fluctuation in price.
FinancialassetsatFVTPLarestatedatfairvalue,withanygainsorlossesarisingonre-measurementrecognizedinstatementof profitorloss.Thenetgainorlossrecognizedinstatementofprofitorlossincorporatesanydividendorinterestearnedonthe financial asset and is included in the ‘other operating income' line item in the statement of profit or loss.
2.7.3 Held-to-maturity investments
Held-to-maturityinvestmentsarenon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturitydates thattheCompanyhasthepositiveintentandabilitytoholdtomaturity.Held-to-maturityinvestmentsincludeinvestmentindebt securities (bonds) issued by federal government, state governments and other corporate entities.
Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest methodlessanyimpairment.Gainsandlossesarerecognisedinthestatementofprofitorlosswhentheinvestmentsare derecognised or impaired, as well as through the amortisation process.
2.7.4 Available-for-sale financial assets (AFS financial assets) AFSfinancialassetsarenon-derivativesthatareeitherdesignatedasAFSorarenotclassifiedas(a)loansandreceivables,(b) held-to-maturity investments or (c) financial assets at fair value through profit or loss.
The Company holds investments in unlisted shares that are not traded in an active market but classified as AFS financial assets andstatedatcostlessaccumulatedimpairment.ChangesinthecarryingamountofAFSmonetaryfinancialassetsrelatingto changesinforeigncurrencyrates,interestincomecalculatedusingtheeffectiveinterestmethodanddividendsonAFSequity investmentsarerecognizedinstatementofprofitorloss.Otherchangesinthecarryingamountofavailable-for-salefinancial assetsarerecognizedinstatementofothercomprehensiveincomeandaccumulatedundertheheadingofavailableforsale reserve.Whentheinvestmentisdisposedoforisdeterminedtobeimpaired,thecumulativegainorlosspreviouslyaccumulatedin the Available-for-sale reserve is reclassified to statement of profit or loss. DividendonAFSequityinstrumentsarerecognizedinprofitorlosswhentheCompany'srighttoreceivethedividendsis established.
The fair value of AFS monetary financial assets denominated in a foreign currency is determined in that foreign currency and translatedatthespotrateprevailingattheendofthereportingperiod.Theforeignexchangegainsandlossesthatarerecognized instatementofprofitorlossaredeterminedbasedontheamortizedcostofthemonetaryasset.Otherforeignexchangegains and losses are recognized in statement of other comprehensive income.
24 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.7 Financial assets - continued
2.7.4 Available-for-sale financial assets (AFS financial assets) AFSequityinvestmentsthatdonothaveaquotedmarketpriceinanactivemarketandwhosefairvaluecannotbereliably measured are measured at cost less any identified impairment losses at the end of each reporting period.
2.7.5 Loans and receivables
Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactive market.Loansandreceivablesaremeasuredatamortizedcostusingtheeffectiveinterestmethod,lessanyimpairment.These investmentsareinitiallyrecognisedatcost,beingthefairvalueoftheconsiderationpaidfortheacquisitionoftheinvestment.All transactioncostsdirectlyattributabletotheacquisitionarealsoincludedinthecostoftheinvestment.Afterinitialmeasurement, loansandreceivablesaremeasuredatamortisedcost,usingtheeffectiveinterestratemethod(EIR)lessimpairment.Amortised costiscalculatedbytakingintoaccountanydiscountorpremiumonacquisitionandfeeorcoststhatareanintegralpartofthe EIR.TheEIRamortisationisincludedinthestatementofprofitorloss.Gainsandlossesarerecognisedintheprofitorlossalso when loans and receivables are derecognised or impaired, as well as through the amortisation process.
2.7.6 Trade receivables Receivablesincludeamountsduefromagents,contractualbrokersandinsurancecontractholders.Receivablesarisingunder insurancecontractsaremeasuredoninitialrecognitionatthefairvalueoftheconsiderationreceivedorreceivable.Subsequentto initialrecognition,insurancereceivablesaremeasuredatamortisedcost,usingtheeffectiveinterestratemethod.Thecarrying valueofinsurancereceivablesisreviewedforimpairmentwhenevereventsorcircumstancesindicatethatthecarryingamount may not be recoverable, with the impairment loss recorded in the statement of profit or loss.
2.7.7 Impairment of financial assets
Financialassets,otherthanthoseatFVTPL,areassessedforindicatorsofimpairmentattheendofeachreportingperiod. Financialassetsareconsideredtobeimpairedwhenthereisobjectiveevidencethat,asaresultofoneormoreeventsthat occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.
ForAFSequityinvestments,asignificantorprolongeddeclineinthefairvalueofthesecuritybelowitscostisconsideredtobe objectiveevidenceofimpairment.ForAFSdebtinstrument,theCompanytreats‘significant’generallyas20%and‘prolonged’ generally as greater than twelve months.
For all other financial assets, objective evidence of impairment could include: * Significant financial difficulty of the issuer or counterparty; or * Breach of contract, such as a default or delinquency in interest or principal payments; or * It becoming probable that the borrower will enter bankruptcy or financial re-organisation; or * The disappearance of an active market for that financial asset because of financial difficulties.
Forcertaincategoriesoffinancialassets,suchastradereceivables,assetsthatareassessednottobeimpairedindividuallyare,in addition,assessedforimpairmentonacollectivebasis.Objectiveevidenceofimpairmentforaportfolioofreceivablescould includetheCompany'spastexperienceofcollectingpayments,anincreaseinthenumberofdelayedpaymentsintheportfolio pasttheaveragecreditperiodof30days,aswellasobservablechangesinnationalorlocaleconomicconditionsthatcorrelate with default on receivables.
Financial asset carried at amortised cost Forfinancialassetscarriedatamortizedcost,theamountoftheimpairmentlossrecognizedisthedifferencebetweentheasset's carryingamountandthepresentvalueofestimatedfuturecashflows,discountedatthefinancialasset'soriginaleffectiveinterest rate.
Thecarryingamountofthefinancialassetisreducedbytheimpairmentlossdirectlyforallfinancialassetswiththeexceptionof tradereceivables,wherethecarryingamountisreducedthroughtheuseofanallowanceaccount.Whenatradereceivableis considered uncollectible, it is written off against the allowance account.
25 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.7 Financial assets - continued
2.7.7 Impairment of financial assets - Continued
Financial asset carried at amortised cost - Continued Subsequentrecoveriesofamountspreviouslywrittenoffarecreditedagainsttheallowanceaccount.Changesinthecarrying amount of the allowance account are recognized in statement of profit or loss.
Forfinancialassetsmeasuredatamortizedcost,if,inasubsequentperiod,theamountoftheimpairmentlossdecreasesandthe decreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentwasrecognized,thepreviouslyrecognized impairmentlossisreversedthroughprofitorlosstotheextentthatthecarryingamountoftheinvestmentatthedatethe impairment was reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
Available for sale financial assets Whenanavailableforsalefinancialassetisconsideredtobeimpaired,cumulativegainsorlossespreviouslyrecognizedin statement of other comprehensive income are reclassified to profit or loss in the period.
InrespectofAFSequitysecurities,impairmentlossespreviouslyrecognizedinprofitorlossarenotreversedthroughprofitor loss.Anyincreaseinfairvaluesubsequenttoanimpairmentlossisrecognizedinstatementofothercomprehensiveincomeand accumulatedundertheheadingofavailable-for-salereserve.InrespectofAFSdebtsecurities,impairmentlossesare subsequentlyreversedthroughstatementofprofitorlossifanincreaseinthefairvalueoftheinvestmentcanbeobjectively related to an event occurring after the recognition of the impairment loss.
2.7.8 Derecognition of financial assets TheCompanyderecognizesafinancialassetonlywhenthecontractualrightstothecashflowsfromtheassetexpire,orwhenit transfersthefinancialassetandsubstantiallyalltherisksandrewardsofownershipoftheassettoanotherentity.IftheCompany neithertransfersnorretainssubstantiallyalltherisksandrewardsofownershipandcontinuestocontrolthetransferredasset, theCompanyrecognizesitsretainedinterestintheassetandanassociatedliabilityforamountsitmayhavetopay.Ifthe Companyretainssubstantiallyalltherisksandrewardsofownershipofatransferredfinancialasset,theCompanycontinuesto recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.
Onderecognitionofafinancialassetinitsentirety,thedifferencebetweentheasset'scarryingamountandthesumofthe considerationreceivedandreceivableandthecumulativegainorlossthathadbeenrecognizedinstatementofother comprehensive income and accumulated in equity is recognized in statement of profit or loss.
Onderecognitionofafinancialassetotherthaninitsentirety(e.g.whentheCompanyretainsanoptiontorepurchasepartofa transferredasset),theCompanyallocatesthepreviouscarryingamountofthefinancialassetbetweenthepartitcontinuesto recognizeundercontinuinginvolvement,andthepartitnolongerrecognizesonthebasisoftherelativefairvaluesofthoseparts onthedateofthetransfer.Thedifferencebetweenthecarryingamountallocatedtothepartthatisnolongerrecognizedandthe sumoftheconsiderationreceivedforthepartnolongerrecognizedandanycumulativegainorlossallocatedtoitthathadbeen recognized in statement of other comprehensive income is recognized in statement of profit or loss.
Acumulativegainorlossthathadbeenrecognizedinothercomprehensiveincomeisallocatedbetweenthepartthatcontinuesto be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.
26 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.7 Financial assets - continued
2.7.9 Policy applicable with effect from 1 January 2018
Initial recognition and measurement Financialassetsareclassified,atinitialrecognition,assubsequentlymeasuredatamortisedcost,fairvaluethroughother comprehensive income (OCI), and fair value through profit or loss.
Theclassificationoffinancialassetsatinitialrecognitiondependsonthefinancialasset’scontractualcashflowcharacteristicsand theCompany’sbusinessmodelformanagingthem.Withtheexceptionoftradereceivablesthatdonotcontainasignificant financingcomponentorforwhichtheCompanyhasappliedthepracticalexpedient,theCompanyinitiallymeasuresafinancial assetatitsfairvalueplus,inthecaseofafinancialassetnotatfairvaluethroughprofitorloss,transactioncosts.Trade receivablesthatdonotcontainasignificantfinancingcomponentorforwhichtheCompanyhasappliedthepracticalexpedient aremeasuredatthetransactionpricedeterminedunderIFRS15.RefertotheaccountingpoliciesonRevenuefromnon-insurance contracts with customers.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flowsthatare‘solelypaymentsofprincipalandinterest(SPPI)’ontheprincipalamountoutstanding.Thisassessmentisreferred to as the SPPI test and is performed at an instrument level.
TheCompany’sbusinessmodelformanagingfinancialassetsreferstohowitmanagesitsfinancialassetsinordertogenerate cashflows.Thebusinessmodeldetermineswhethercashflowswillresultfromcollectingcontractualcashflows,sellingthe financial assets, or both.
Purchasesorsalesoffinancialassetsthatrequiredeliveryofassetswithinatimeframeestablishedbyregulationorconventionin themarketplace(regularwaytrades)arerecognisedonthetradedate,i.e.,thedatethattheCompanycommitstopurchaseor sell the asset.
Business model assessment There are three business models available under IFRS 9: • Hold to collect Financial assets with objective to collect contractual cash flows. •HoldtoCollectandsell(Financialassetsheldwiththeobjectiveofbothcollectingcontractualcashflowsandsellingfinancial assets). •OtherFinancialAssetsheldwithtradingintentorthatdonotmeetthecriteriaofeither"HoldtoCollect"or"HoldtoCollectand sell.
TheAssessmentofthebusinessmodelrequiresjudgmentbasedonthefactsandcircumstancesasatthedateoftheassessment. SovereignTrustInsurancePlchasconsideredquantitativefactors(e.g.expectedfrequencyandvolumeofsales)andqualitative factorssuchashowtheperformanceofthebusinessmodelandfinancialassetsheldwithinthebusinessmodelareevaluatedand reportedtomanagement;theriskthataffecttheperformanceofthebusiness,modelandthefinancialassetsheldwithinthe businessmodel.Inparticular,thewayinwhichthoserisksaremanaged;andhowmanagementreceivedreturnsontheassets(i.e. whether the returns are based on fair value of the assets managed or on contractual cash flows collected).
Solely Payments of principal and Interest (SPPI) IfafinancialassetisheldineitheraHoldtoCollectorHoldtoCollectandSellmodel,thenanassessmentisdeterminedwhether contractualcashflowsaresolelypaymentsofprincipalandinterestonprincipalamountoutstandingatinitialrecognitionis required to determine the classification.
27 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.7 Financial assets - continued
2.7.9 Policy applicable with effect from 1 January 2018
Solely Payments of principal and Interest (SPPI)
ContractualcashflowsthatareSPPIontheprincipalamountoutstandingareconsideredasbasiclendingarrangementwith interestasconsiderationforthetimevalueofmoneyandthecreditriskassociatedwiththeprincipalamountoutstandingduring thetenoroftheagreedarrangement.OtherbasiclendingriskslikeLiquidityriskandcostofadministrationassociatedwithholding the financial asset for the specified tenor and the profit margin that is consistent with a basic lending arrangement.
Subsequent measurement For purposes of subsequent measurement, financial assets are classified in four categories: • Financial assets at amortised cost (debt instruments) • Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) •FinancialassetsdesignatedatfairvaluethroughOCIwithnorecyclingofcumulativegainsandlossesuponderecognition(equity instruments) • Financial assets at fair value through profit or loss
Financial assets at amortised cost (debt instruments) ThiscategoryisthemostrelevanttotheCompany.TheCompanymeasuresfinancialassetsatamortisedcostifbothofthe following conditions are met: •Thefinancialassetisheldwithinabusinessmodelwiththeobjectivetoholdfinancialassetsinordertocollectcontractualcash flows •Thecontractualtermsofthefinancialassetgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipaland interest on the principal amount outstanding
Financialassetsatamortisedcostaresubsequentlymeasuredusingtheeffectiveinterest(EIR)methodandaresubjectto impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
TheCompany’sfinancialassetsatamortisedcostincludesdebtinstruments(bonds),treasurybills,fixeddepositswithbanksand other.
Financial assets at fair value through OCI (debt instruments) The Company measures debt instruments at fair value through OCI if both of the following conditions are met: •Thefinancialassetisheldwithinabusinessmodelwiththeobjectiveofbothholdingtocollectcontractualcashflowsandselling and •Thecontractualtermsofthefinancialassetgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipaland interest on the principal amount outstanding.
FordebtinstrumentsatfairvaluethroughOCI,interestincome,foreignexchangerevaluationandimpairmentlossesorreversals arerecognisedinprofitorlossandcomputedinthesamemannerasforfinancialassetsmeasuredatamortisedcost.The remainingfairvaluechangesarerecognisedinOCI.Uponderecognition,thecumulativefairvaluechangerecognisedinOCIis recycled to profit or loss.
During the year under consideration, the Company does not have any debt instruments at fair value through OCI.
Financial assets designated at fair value through OCI (equity instruments) Uponinitialrecognition,theCompanycanelecttoclassifyirrevocablyitsequityinvestmentsasequityinstrumentsdesignatedat fairvaluethroughOCIwhentheymeetthedefinitionofequityunderIAS32FinancialInstruments:Presentationandarenotheld for trading. The classification is determined on an instrument-by-instrument basis.
Gainsandlossesonthesefinancialassetsareneverrecycledtoprofitorloss.Dividendsarerecognisedasotherincomeinprofit orlosswhentherightofpaymenthasbeenestablished,exceptwhentheCompanybenefitsfromsuchproceedsasarecoveryof partofthecostofthefinancialasset,inwhichcase,suchgainsarerecordedinOCI.Equityinstrumentsdesignatedatfairvalue throughOCIarenotsubjecttoimpairmentassessment.TheCompanyelectedtoclassifyirrevocablyitsnon-listedequity investments under this category.
28 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.7 Financial assets - continued
2.7.9 Policy applicable with effect from 1 January 2018
Financial assets at fair value through profit or loss Financialassetsatfairvaluethroughprofitorlossincludefinancialassetsheldfortrading,financialassetsdesignateduponinitial recognitionatfairvaluethroughprofitorloss,orfinancialassetsmandatorilyrequiredtobemeasuredatfairvalue.Financial assetsareclassifiedasheldfortradingiftheyareacquiredforthepurposeofsellingorrepurchasinginthenearterm.Financial assetswithcashflowsthatarenotsolelypaymentsofprincipalandinterestareclassifiedandmeasuredatfairvaluethrough profitorloss,irrespectiveofthebusinessmodel.Notwithstandingthecriteriafordebtinstrumentstobeclassifiedatamortised costoratfairvaluethroughOCI,asdescribedabove,debtinstrumentsmaybedesignatedatfairvaluethroughprofitorlosson initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.
Financialassetsatfairvaluethroughprofitorlossarecarriedinthestatementoffinancialpositionatfairvaluewithnetchanges in fair value recognised in profit or loss.
ThiscategoryincludeslistedequityinvestmentswhichtheCompanyhadnotirrevocablyelectedtoclassifyatfairvaluethrough OCI.Dividendsonlistedequityinvestmentsarealsorecognisedasotherincomeinprofitorlosswhentherightofpaymenthas been established.
Derecognition Afinancialasset(or,whereapplicable,apartofafinancialassetorpartofaCompanyofsimilarfinancialassets)isprimarily derecognised (i.e., removed from the Company’s statement of financial position) when:
• The rights to receive cash flows from the asset have expired Or •TheCompanyhastransferreditsrightstoreceivecashflowsfromtheassetorhasassumedanobligationtopaythereceived cashflowsinfullwithoutmaterialdelaytoathirdpartyundera‘pass-through’arrangement; andeither(a)theCompanyhas transferredsubstantiallyalltherisksandrewardsoftheasset,or(b)theCompanyhasneithertransferrednorretained substantially all the risks and rewards of the asset, but has transferred control of the asset.
WhentheCompanyhastransferreditsrightstoreceivecashflowsfromanassetorhasenteredintoapass-througharrangement, itevaluatesif,andtowhatextent,ithasretainedtherisksandrewardsofownership.Whenithasneithertransferrednorretained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferredassettotheextentofitscontinuinginvolvement.Inthatcase,theCompanyalsorecognisesanassociatedliability.The transferredassetandtheassociatedliabilityaremeasuredonabasisthatreflectstherightsandobligationsthattheCompanyhas retained.
Continuinginvolvementthattakestheformofaguaranteeoverthetransferredassetismeasuredattheloweroftheoriginal carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment of financial assets TheCompanyrecognisesanallowanceforexpectedcreditlosses(ECLs)foralldebtinstrumentsnotheldatfairvaluethrough profitorloss.ECLsarebasedonthedifferencebetweenthecontractualcashflowsdueinaccordancewiththecontractandallthe cashflowsthattheCompanyexpectstoreceive,discountedatanapproximationoftheoriginaleffectiveinterestrate.The expectedcashflowswillincludecashflowsfromthesaleofcollateralheldorothercreditenhancementsthatareintegraltothe contractual terms.
ECLsarerecognisedintwostages.Forcreditexposuresforwhichtherehasnotbeenasignificantincreaseincreditrisksince initialrecognition,ECLsareprovidedforcreditlossesthatresultfromdefaulteventsthatarepossiblewithinthenext12-months (a12-monthECL).Forthosecreditexposuresforwhichtherehasbeenasignificantincreaseincreditrisksinceinitialrecognition, alossallowanceisrequiredforcreditlossesexpectedovertheremaininglifeoftheexposure,irrespectiveofthetimingofthe default (a lifetime ECL).
29 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.7 Financial assets - continued
2.7.9 Policy applicable with effect from 1 January 2018
Impairment of financial assets - continued Fordebtinstrumentsatamortisedcost,theCompanyappliesthelowcreditrisksimplification.Ateveryreportingdate,the Companyevaluateswhetherthedebtinstrumentisconsideredtohavelowcreditriskusingallreasonableandsupportable informationthatisavailablewithoutunduecostoreffort.Inmakingthatevaluation,theCompanyreassessesthecreditratingof thedebtinstrumentbyinternationalcreditratingagencieslikeS&P,MoodysandFitchaswellaslocalratingsbyAgustoandCo.It istheCompany’spolicytomeasureECLsonsuchinstrumentsona12-monthbasis.Wherethecreditriskofanybonddeteriorates, the Company will sell the bond and purchase bonds meeting the required investment grade.
TheCompany’sdebtinstrumentsatamortisedcostcomprisesolelyofquotedbondsthataregradedinthetopinvestment categoryandthecreditratingsaretrackedbythefinanceandinvestmentteamsviapublicationsbyInternationalCreditRating Agencies and trading exchange platforms.
TheCompany'sfixedincomeinvestmentportfolioconsistsofInvestmentgradeandhighspeculativebondsand,therefore,are consideredtobelowcreditriskinvestments.ItistheCompany’spolicytomeasureECLsonsuchinstrumentsona12-monthbasis. However,whentherehasbeenasignificantincreaseincreditrisksinceorigination,theallowancewillbebasedonthelifetime ECL.TheCompanyusestheratingsfromtheInternationalCreditRatingAgenciesbothtodeterminewhetherthedebtinstrument has significantly increased in credit risk and to estimate ECLs.
TheCompanyconsidersafinancialassetindefaultwhencontractualpaymentsare90dayspastdue.However,incertaincases, theCompanymayalsoconsiderafinancialassettobeindefaultwheninternalorexternalinformationindicatesthattheCompany isunlikelytoreceivetheoutstandingcontractualamountsinfullbeforetakingintoaccountanycreditenhancementsheldbythe Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
Further disclosures relating to impairment of financial assets are also provided in the following • Disclosures for significant estimates Judgements and assumptions - Note 3 • Financial assets at amortised cost - Notes 1.3 and 2.3 to the financial statements •Other receivables and prepayments - Note 6.2
Write off Financialassetsarewrittenoffwhenthereisnoreasonableexpectationofrecovery,suchasadebtorfailingtoengageina repaymentplanwiththecompany.TheCompanycategorisesitsreceivablesforwriteoffwhenadebtorfailstomakecontractual paymentsgreaterthan360dayspastdue.Wherefinancialassetshavebeenwrittenoff,thecompanycontinuestoengagein enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognised in profit or loss.
Thegrosscarryingamountofanassetiswrittenoff(eitherfullyorpartially)totheextentthatthereisnorealisticprospectof recovery.ThisisgenerallythecasewhentheCompanydeterminesthatthecounterpartydoesnothaveassetsorsourcesof incomethatcouldgeneratesufficientcashflowstorepaytheamountsubjecttowriteoff.However,thefinancialassetsthatare subjectedtowriteoffcouldstillbesubjecttoenforcementactivitiesinothertocomplywiththeCompany'sproceduresfor recovery of amount due.
2.8 Financial liabilities and equity instruments
2.8.1 Classification as debt or equity DebtandequityinstrumentsissuedbytheCompanyareclassifiedaseitherfinancialliabilitiesorasequityinaccordancewiththe substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
2.8.2 Equity Instruments Anequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsofanentityafterdeductingallofitsliabilities. EquityinstrumentsissuedbytheCompanyarerecognisedastheproceedsreceived,netofdirectissuecosts.Repurchaseofthe Company'sownequityinstrumentsisrecognisedanddeducteddirectlyinequity.Nogainorlossisrecognisedinprofitorlosson the purchase, sale, issue or cancellation of the Company's own equity instruments.
30 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.8 Financial liabilities and equity instruments - Continued
2.8.3 Financial liabilities Initial recognition and measurement Allfinancialliabilitiesarerecognisedinitiallyatfairvalueand,inthecaseofloansandborrowingsandpayables,netofdirectly attributable transaction costs.
TheCompanydoesnothaveanyfinancialliabilitythatismeasuredatfairvaluethroughprofitorlossduringtheperiodunder review.
2.8.4 Other financial liabilities Subsequent measurement Other financial liabilities (including borrowings) are subsequently measured at amortized cost using the effective interest method.
Theeffectiveinterestmethodisamethodofcalculatingtheamortizedcostofafinancialliabilityandofallocatinginterest expenseovertherelevantperiod.Theeffectiveinterestrateistheratethatexactlydiscountsestimatedfuturecashpayments (includingallfeesandpointspaidorreceivedthatformanintegralpartoftheeffectiveinterestrate,transactioncostsandother premiumsordiscounts)throughtheexpectedlifeofthefinancialliability,or(whereappropriate)ashorterperiod,tothenet carrying amount on initial recognition.
2.8.5 Derecognition of financial liabilities TheCompanyderecognisesfinancialliabilitieswhen,andonlywhen,theCompany'sobligationsareextinguished-iewhenthe obligationspecifiedinthecontractisdischarged,cancelledortheyexpire.Thedifferencebetweenthecarryingamountofthe financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
Thedifferencebetweenthecarryingamountofafinancialliability(orpartofafinancialliability)extinguishedortransferredto anotherpartyandtheconsiderationpaid,includinganynon-cashassetstransferredorliabilitiesassumed,isberecognisedin profit or loss.
Anexchangebetweenanexistingborrowerandlenderofdebtinstrumentswithsubstantiallydifferenttermsisbeaccountedfor asanextinguishmentoftheoriginalfinancialliabilityandtherecognitionofanewfinancialliability.Similarly,asubstantial modificationofthetermsofanexistingfinancialliabilityorapartofit(whetherornotattributabletothefinancialdifficultyofthe debtor) shall be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
2.8.6 Offsetting of financial instruments Financialassetsandfinancialliabilitiesareoffsetandthenetamountisreportedinthestatementoffinancialpositionifthereisa currentlyenforceablelegalrighttooffsettherecognisedamountsandthereisanintentiontosettleonanetbasis,torealisethe assets and settle the liabilities simultaneously.
2.9 Other assets Other receivables principally consist of prepayments, accrued income and sundry debtors and are carried at amortised cost.
2.10 Reinsurance contracts TheCompanyentersintoreinsurancecontractsinthenormalcourseofbusinessinordertolimitthepotentialforlossesarising fromcertainexposures.Outwardsreinsurancepremiumsareaccountedforinthesameperiodastherelatedpremiumsforthe direct or inwards reinsurance business being reinsured.
2.10.1 Reinsurance assets Reinsurance assets include balances due from reinsurance companies for paid and unpaid losses and ceded policy claims. Reinsuranceassetsaremeasuredconsistentlywiththeamountsassociatedwiththeunderlyinginsurancecontractsandin accordancewiththetermsofthereinsurancecontract.Reinsuranceisrecordedasanassetunlessarightofset-offexists,in which case the associated liabilities are reduced to take account of reinsurance.
Reinsurance assets are subject to impairment testing when and only when; (a) thereisobjectiveevidence,asaresultofaneventthatoccurredafterinitialrecognitionofthereinsuranceasset,thatthe cedant may not receive all amounts due to it under the terms of the contract; and
31 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.10.1 Reinsurance assets - Continued
(b) that event has a reliably measurable impact on the amounts that the cedant will receive from the reinsurer.
Thecarryingamountisreducedtoitsrecoverableamountwhenthereisanimpairmentloss.Theimpairmentlossisrecognisedas anexpenseintheprofitorloss.Theassetisimpairedifobjectiveevidenceisavailabletosuggestthatitisprobablethatthe Company will not be able to collect the amounts due from reinsurers.
2.10.2 Reinsurance recoveries ReinsurancerecoveriesinrespectofIncurredbutnotreported(IBNR)claimsareassumedtobeconsistentwiththehistorical recoveriesonpaidandoutstandingclaims,adjustedtoreflectchangesinthenatureandextentoftheCompany’sreinsurance programmes.Anassessmentismadeoftherecoverabilityofreinsurancehavingregardtoavailabledataonthefinancialstrength of the reinsurance companies.
Gains or losses on buying reinsurance are recognised in income at the date of purchase and are not amortised.
2.10.3 Reinsurance liabilities Reinsuranceliabilitiescomprisepremiumspayableforoutwardsreinsurancecontractsandarerecognisedasanexpensewhen due.
Reinsuranceliabilitiesarederecognizedwhen,andonlywhen,itisextinguished—i.e.whentheobligationspecifiedinthecontract is discharged or cancelled or expires.
2.11 Deferred acquisition costs Theincrementalcostsdirectlyattributabletotheacquisitionofnewbusinessaredeferredbyrecognisinganasset.Forother insurancecontracts,acquisitioncostsincludingbothincrementalacquisitioncostsandotherindirectcostsofacquiringand processing new business are deferred.
Where such business is reinsured the reinsurers’ share is carried forward as deferred income.
Deferredacquisitioncostsanddeferredoriginationcostsareamortizedsystematicallyoverthelifeofthecontractsandtestedfor impairmentateachreportingdate.Anyamountnotrecoverableisexpensed.Theyarederecognizedwhentherelatedcontracts are settled or disposed of.
Deferred income - Reinsurance commissions The Company recognises commissions receivable on outwards reinsurance contracts as a deferred income and amortised over the average term of the expected premiums payable.
2.12 Investment properties Investmentpropertiesaremeasuredinitiallyatcost,includingtransactioncosts.Subsequenttoinitialrecognition,investment propertiesaremeasuredatfairvalue.Gainsandlossesarisingfromchangesinthefairvalueofinvestmentpropertiesareincluded instatementofprofitorlossintheperiodinwhichtheyarise.Fairvaluesaredeterminedbasedonanannualevaluation performed by an accredited independent external valuer applying a valuation model. Aninvestmentpropertyisderecognizedupondisposalorwhentheinvestmentpropertyispermanentlywithdrawnfromuseand nofutureeconomicbenefitsareexpectedfromthedisposal.Anygainorlossarisingonderecognitionoftheproperty(calculated asthedifferencebetweenthenetdisposalproceedsandthecarryingamountoftheasset)isincludedinstatementofprofitorloss in the period in which the property is derecognized.
Ifaninvestmentpropertybecomesowner-occupied,itisreclassifiedasproperty,plantandequipment,anditsfairvalueatthe date of reclassification becomes its cost for subsequent accounting purposes.
Ifapropertyinitiallyclassifiedasproperty,plantandequipmentbecomesaninvestmentpropertybecauseitsusehaschanged, anydifferencearisingbetweenthecarryingamountandthefairvalueofthisitematthedateoftransferisrecognisedin statementofothercomprehensiveincomeasarevaluationofproperty,plantandequipment.However,ifafairvaluegain reversesapreviousimpairmentloss,thegainisrecognisedinprofitorloss.Uponthedisposalofsuchinvestmentproperty,any surplus previously recorded in equity is transferred to retained earnings; the transfer is not made through profit or loss.
32 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.13 Intangible assets
Software Theamountinitiallyrecognizedforintangibleassetsisthesumoftheexpenditureincurredfromthedatewhentheintangible assetfirstmeetstherecognitioncriteria.Wherenointernally-generatedintangibleassetcanberecognized,development expenditure is recognized in profit or loss in the period in which it is incurred.
Costs associated with maintaining computer software programmes are recognised as an expense as incurred.
Directlyattributablecoststhatarecapitalisedaspartofthesoftwareproductincludethesoftwaredevelopmentemployeecosts andanappropriateportionofdirectlyattributableoverheads.Otherdevelopmentexpendituresthatdonotmeetthesecriteriaare recognised as an expense as incurred.
Subsequenttoinitialrecognition,intangibleassetsarereportedatcostlessaccumulatedamortizationandaccumulated impairmentlosses,onthesamebasisasintangibleassetsthatareacquiredseparately.Itsestimatedusefullifetypicallyvaries between 3 and 5 years.
2.14 Property, plant and equipment Property,plantandequipmentarethoseownedandusedbytheCompany,andarestatedinthestatementoffinancialpositionat costexceptforbuildingwhichareatrevaluedamount,lessanysubsequentaccumulateddepreciationandaccumulated impairment.
Property,plantandequipmentinthecourseofconstructionforproduction,supplyoradministrativepurposesarecarriedatcost, lessanyrecognizedimpairment.Costincludesprofessionalfeesand,forqualifyingassets,borrowingcostscapitalizedin accordancewiththeCompany'saccountingpolicy.Suchpropertiesareclassifiedtotheappropriatecategoriesofproperty,plant and equipment when completed and ready for intended use.
Depreciationoftheseassets,onthesamebasisasotherpropertyassets,commenceswhentheassetsareavailablefortheir intended use.
Depreciation is recognized so as to write off the cost or valuation of assets (other than freehold land and properties under construction)lesstheirresidualvaluesovertheirusefullives,usingthestraight-linemethod.Theestimatedusefullives,residual valuesanddepreciationmethodarereviewedattheendofeachreportingperiod,withtheeffectofanychangesinestimate accounted for on a prospective basis. Freehold land is not depreciated.
Property,plantandequipment(excludingbuilding)isstatedatcost,excludingthecostsofdaytodayservicing,lessaccumulated depreciationandaccumulatedimpairmentlosses.Replacementormajorinspectioncostsarecapitalisedwhenincurredandifitis probablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtotheentityandthecostoftheitemcanbemeasured reliably.
Buildingismeasuredatfairvaluelessaccumulateddepreciationandimpairmentlossesrecognisedafterthedateofthe revaluation.Valuationsareperformedfrequentlytoensurethatthefairvalueofarevaluedassetdoesnotdiffermateriallyfrom its carrying amount.
Anyrevaluationsurplusisrecordedinstatementofothercomprehensiveincomeandhence,creditedtotheassetrevaluation reserveinequity,excepttotheextentthatitreversesarevaluationdecreaseofthesameassetpreviouslyrecognisedinthe statementofprofitorloss,inwhichcase,theincreaseisrecognisedintheprofitorloss.Arevaluationdeficitisrecognisedinthe profit or loss, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revalaution reserve.
Accumulateddepreciationasattherevaluationdateiseliminatedagainstthegrosscarryingamountoftheassetandthenet amountisrestatedtotherevaluedamountoftheasset.Upondisposal,anyrevaluationreserverelatingtotheparticularasset being sold is transferred to retained earnings.
33 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.14 Property, plant and equipment - Continued
Depreciationiscalculatedonastraightlinemethodtowritedownthecostofassetsinequalinstallmentsovertheirestimated useful lives, at the following annual rates:
Land - Building 2% Leasehold improvements 10% Motor vehicles 25% Furniture and fittings 15% Computer and equipment 33.3% Office equipment 20% Plant and machinery 15%
Anitemofproperty,plantandequipmentisderecognizedupondisposalorwhennofutureeconomicbenefitsareexpectedto arisefromthecontinueduseoftheasset.Anygainorlossarisingonthedisposalorretirementofanitemofproperty,plantand equipmentisdeterminedasthedifferencebetweenthesalesproceedsandthecarryingamountoftheassetandisrecognizedin profitorloss.Theresidualvalues,usefullivesandmethodsofdepreciationofproperty,plantandequipmentarereviewedateach financial year end and adjusted prospectively, if appropriate.
2.15 Statutory deposit Statutorydepositrepresentsadepositof10%oftheregulatorysharecapitalkeptwiththeCentralBankofNigeria.Theamount heldwillincreaseordecreaseinrelationtotheamountofpaidupsharecapitalinissue.Thecashamountheldisconsideredtobe a restricted cash balance.
2.16 Insurance contract liabilities
2.16.1 Provision for Outstanding claims and Incurred but not reported (IBNR) claims Provisionforliabilitiesofinsurancecontractsismadeforoutstandingclaimsandsettlementexpensesincurredatthereporting dateincludinganestimateforthecostofclaimsincurredbutnotreported(IBNR)atthatdate.Includedintheprovisionisan estimate of the internal and external costs of handling the outstanding claims.
Material salvage and other recoveries including reinsurance recoveries are presented as assets.
Significantdelaysareexperiencedinthenotificationandsettlementofcertaintypesofgeneralinsuranceclaims,particularlyin respectofliabilitybusiness,environmentalandpollutionexposures,theultimatecostofwhichmayvaryfromtheoriginal assessment.Adjustmentstotheamountsofclaimsprovisionsestablishedinprioryearsarereflectedinthefinancialstatements fortheperiodinwhichtheadjustmentsaremadeanddisclosedseparately,ifmaterial.TheliabilityforIncurredbutnotReported (IBNR)claimsiscalculatedattheendofthereportingperiod,usingarangeofstandardactuarialclaimprojectiontechniques, basedonempiricaldataandcurrentassumptionsthatmayincludeamarginforadversedeviation.Theliabilitywasnotdiscounted for time value of money; and no further provision was made for equalisation or catastrophe reserves (as prohibited by IFRS 4).
These liabilities are derecognised when the obligation to pay a claim is extinguished (i.e. expired, discharged or cancelled).
2.16.2 Provision for unearned premiums and unexpired risks Theprovisionforunearnedpremiumsrepresentsthatpartofwrittenpremiums,grossofcommissionpayabletointermediaries thatisestimatedtobeearnedinsubsequentperiods.Thechangeintheprovisionisrecordedintheprofitorlosstorecognize revenue over the period of the risk.
2.16.3 Liability adequacy AteachreportingdatetheCompanyperformsaliabilityadequacytestonitsinsuranceliabilitieslessrelateddeferredacquisition costtoensurethatthecarryingvalueisadequate,usingcurrentestimatesoffuturecashflows,takingintoaccounttherelevant investment return. If that assessment shows that the carrying amount of the liabilities is inadequate, any deficiency is recognised as an expense in the profitorlossandsubsequentlybyrecognisinganadditionalliabilityforclaimsprovisionsorrecognisingaprovisionforunexpired risks. The unexpired risks provision is assessed in aggregate for business classes which are managed together.
34 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.17 Trade payables Tradepayablesarerecognisedinitiallyatfairvalueandsubsequentlymeasuredatamortisedcostusingtheeffectiveinterest method.Thefairvalueofanon-interestbearingliabilityisitsdiscountedrepaymentamount.Iftheduedateislessthanoneyear, discounting is omitted.
2.18 Other payables Otherpayablesareinitiallyrecognisedatfairvalue,fairvaluerepresentstransactionpriceandsubsequentlymeasuredat amortised cost.
2.19 Taxation Income tax expense represents the sum of the tax currently payable and deferred tax.
2.19.1 Current tax Thetaxcurrentlypayableisbasedontaxableprofitfortheyear.Taxableprofitdiffersfromprofitasreportedinthestatementof profitorlossbecauseofitemsofincomeorexpensethataretaxableordeductibleinotheryearsanditemsthatarenevertaxable or deductible.
TheCompany'sliabilityforcurrenttaxiscalculatedusingtaxratesthathavebeenenactedorsubstantivelyenactedbytheendof the reporting period.
Thecurrenttaxesinclude:CompanyIncomeTaxat30%oftaxableprofit;EducationTaxat2%ofassessableprofit;CapitalGain Taxat10%ofchargeablegains;andInformationTechnologyDevelopmentLevyat1%ofaccountingprofit.Minimumtaxmaybe computed based on CITA.
2.19.2 Deferred tax Deferredtaxisrecognizedontemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesinthefinancial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary difference, unutilised tax loss and unutilised tax credits.
Suchdeferredtaxassetsandliabilitiesarenotrecognizedifthetemporarydifferencearisesfromgoodwillorfromtheinitial recognition(otherthaninabusinesscombination)ofotherassetsandliabilitiesinatransactionthataffectsneitherthetaxable profitnortheaccountingprofit.Deferredtaxliabilitiesarerecognizedfortaxabletemporarydifferencesassociatedwith investmentsinsubsidiariesandassociates,andinterestsinjointventures,exceptwheretheCompanyisabletocontrolthe reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferredtaxassetsarisingfromdeductibletemporarydifferencesassociatedwithsuchinvestmentsandinterestsareonly recognizedtotheextentthatitisprobablethattherewillbesufficienttaxableprofitsagainstwhichtoutilisethebenefitsofthe temporary differences and they are expected to reverse in the foreseeable future.
Thecarryingamountofdeferredtaxassetsisreviewedattheendofeachreportingperiodandreducedtotheextentthatitisno longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferredtaxliabilitiesandassetsaremeasuredatthetaxratesthatareexpectedtoapplyintheperiodinwhichtheliabilityis settledortheassetrealized,basedontaxrates(andtaxlaws)thathavebeenenactedorsubstantivelyenactedbytheendofthe reportingperiod.Themeasurementofdeferredtaxliabilitiesandassetsreflectsthetaxconsequencesthatwouldfollowfromthe mannerinwhichtheCompanyexpects,attheendofthereportingperiod,torecoverorsettlethecarryingamountofitsassets and liabilities.
35 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.19.3 Current and deferred tax for the year Currentanddeferredtaxarerecognizedinstatementofprofitorloss,exceptwhentheyrelatetoitemsthatarerecognizedin statementofothercomprehensiveincomeordirectlyinequity,inwhichcase,thecurrentanddeferredtaxarealsorecognizedin statement of other comprehensive income or directly in equity respectively.
Wherecurrenttaxordeferredtaxarisesfromtheinitialaccountingforabusinesscombination,thetaxeffectisincludedinthe accounting for the business combination.
An entity shall offset deferred tax assets and deferred tax liabilities if, and only if: (a) the entity has a legally enforceable right to set off current tax assets against current tax liabilities; and
(b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either:
(i) the same taxable entity; or differenttaxableentitieswhichintendeithertosettlecurrenttaxliabilitiesandassetsonanetbasis,ortorealisetheassetsand (ii) settletheliabilitiessimultaneously,ineachfutureperiodinwhichsignificantamountsofdeferredtaxliabilitiesorassetsare expected to be settled or recovered.
2.20 Employee benefit costs
Defined contribution pension scheme Paymentstodefinedcontributionretirementbenefitplansarerecognisedasanexpensewhenemployeeshaverenderedservice entitling them to the contributions.
ThisisdoneinlinewiththePensionReformAct2014,wherebytheminimumrateofPensionContributionis18%ofmonthly emolument, where 8% will be contributed by employee and 10% by the employer.
Short-term benefits Wages,salaries,paidannualleave,bonusesandnon-monetarybenefitsarerecognisedasemployeebenefitexpenseswhenthe associated services are rendered by the employees of the Company.
Defined benefit plan The Company operates a defined benefit plan to employees who are qualified as at the period it was discontinued.
Remeasurements,comprisingactuarialgainsandlossesandthereturnonplanassets(excludingamountsincludedinnetinterest onthenetdefinedbenefitliability),arerecognisedimmediatelyinthestatementoffinancialpositionwithacorrespondingdebitor credittoretainedearningsthroughOCIintheperiodinwhichtheyoccur.Remeasurementsarenotreclassifiedtoprofitorlossin subsequent periods.
Pastservicecostsarerecognisedinprofitorlossontheearlierofthedateoftheplanamendmentorcurtailmentorthedatethat the Company recognises related restructuring costs or termination benefits.
Netinterestiscalculatedbyapplyingthediscountratetothenetdefinedbenefitliabilityorasset.TheCompanyrecognisesthe followingchangesinthenetdefinedbenefitobligationunder‘Otheroperatingandadministrativeexpenses’inthestatementof profit or loss:
► Service costs comprising current service costs, past service costs, and non-routine settlements ► Net interest expense or income
2.21 Borrowings
Financecostcompriseinterestpayableonloansandbankoverdrafts.Theyarechargedtoprofitorlossasincurred,exceptthose that relate to qualifying assets.
Afterinitialrecognition,interestbearingloansandborrowingsaresubsequentlymeasuredatamortisedcostusingtheeffective interestratemethod.Gainsandlossesarerecognisedintheprofitorlosswhentheliabilitiesarederecognisedaswellasthrough theeffectiveinterestrate(EIR)amortisationprocess.Amortisedcostiscalculatedbytakingintoaccountanydiscountor premiumonacquisitionandfeeorcoststhatisanintegralpartoftheEIR.TheEIRamortisationisincludedinfinancecostinthe profit or loss.
36 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.22 Share capital Sharesareclassifiedasequitywhenthereisnoobligationtotransfercashorotherassets.Incrementalexternalcoststhatare directly attributable to the issue of these shares are recognised in equity, net of tax.
2.23 Statutory contingency reserve TheCompanymaintainsStatutorycontingencyreserveinaccordancewiththeprovisionofSection21(2)oftheInsuranceActCAP I17,LFN2004tocoverfluctuationsinsecuritiesandvariationsinstatisticalestimatesatarateequaltogreaterof3%ofgross premiumor20%ofnetprofitsuntiltheaccumulatedamountreachesthegreateroftheminimumpaid-upcapitalor50%ofthenet premium.
2.24 Dividends
DividendtotheshareholdersoftheCompanyisrecognisedintheperiodinwhichthedividendaredeclaredasafirstinterim dividendapprovedbytheBoardofDirectorsorasecondinterimdividendapprovedbytheCompany’sshareholdersatthe Company’s annual general meeting.
Finaldividendfortheyearthatareapprovedafterthereportingdatearedealtwithaseventafterthereportingdate.Thisis approved by the shareholders at the Annual General Meeting.
2.25 Revenue recognition RevenueisrecognisedtotheextentthatitisprobablethattheeconomicbenefitswillflowtotheCompanyandtherevenuecanbe reliablymeasured,regardlessofwhenthepaymentisreceived.Revenueismeasuredatthefairvalueoftheconsideration receivedorreceivable,takingintoaccountcontractuallydefinedtermsofpaymentandexcludingtaxesorduty.TheCompanyhas concludedthatitistheprincipalinallofitsrevenuearrangementssinceitistheprimaryobligorinalltherevenuearrangements, haspricinglatitude,andisalsoexposedtoinventoryandcreditrisks.Thespecificrecognitioncriteriadescribedbelowmustalso be met before revenue is recognised.
2.25.1 Gross written premium Writtenpremiumscomprisethepremiumsoncontractsinceptedinthefinancialyear.Writtenpremiumsarestatedgrossof commissions that are payable to intermediaries and exclusive of taxes and duties on premiums.
Unearned premiums are those proportions of the premium which relate to periods of risk after the reporting date. Unearned premiums are calculated on a time apportionment basis.
2.25.2 Fees and commission income
Feesandcommissionincomeconsistsprimarilyofagencyandbrokeragecommission,reinsuranceandprofitcommissions, policyholderadministrationfeesandothercontractfees.Reinsurancecommissionreceivablesaredeferredinthesamewayas acquisition costs. All other fees and commission income are recognized as the services are provided.
2.25.3 Investment income Investmentincomeconsistsofdividend,interestandrentreceived,movementsinamortizedcostondebtsecuritiesandother loans and receivables, realized gains and losses, and unrealized gains and losses on fair value assets.
Interest income Interestincomeisrecognizedinthestatementofprofitorlossasitaccruesandiscalculatedbyusingtheeffectiveinterestrate method.Feesandcommissionsthatareanintegralpartoftheeffectiveyieldofthefinancialassetorliabilityarerecognizedasan adjustment to the effective interest rate of the instrument.
Dividend income Dividend income from investments is recognized when the shareholders’ rights to receive payment have been established.
Rental income Rental income is recognized on an accrual basis.
Realized gains and losses Gainsandlossesonthesaleofinvestmentsarecalculatedasthedifferencebetweennetsalesproceedsandtheoriginalor amortized cost and are recorded on occurrence of the sale transaction.
37 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2.25.3 Investment income - Continued
Unrealised gains and losses Unrealizedgainsorlossesrepresentthedifferencebetweenthecarryingvalueattheyearendandthecarryingvalueatthe previousyearendorpurchasevalueduringtheyear,lessthereversalofpreviouslyrecognizedunrealizedgainsandlossesin respect of disposals during the year.
2.26 Benefits, claims and expenses recognition
2.26.1 Insurance Benefits and claims Insuranceclaimsincludeallclaimsoccurringduringtheyear,whetherreportedornot,relatedinternalandexternalclaims handlingcoststhataredirectlyrelatedtotheprocessingandsettlementofclaims,areductionforthevalueofsalvageandother recoveries, and any adjustments to claims outstanding from previous years.
Reinsurance claims TheCompanyrecognisesreinsuranceclaimswhentherelatedgrossinsuranceclaimsarerecognisedaccordingtothetermsofthe relevant contracts.
2.26.2 Underwriting expenses Underwritingexpensesrefertoallexpenses,inclusiveofnetcommissions,thatareapplicabletotheservicingofnetpremiums written. These expenses encompass all that are incurred by an insurance company.
Underwritingexpensesforinsurancecontractsarerecognisedasexpensewhenincurred,withtheexceptionofacquisitioncosts which are recognised on a time apportionment basis in respect of risk.
Acquisition costs comprise all direct and indirect costs arising from the writing of insurance contracts.
Otherunderwritingexpensesarethoseincurredinservicingexistingpolicies/contract.Theseexpensesarechargedinthe accounting period in which they are incurred.
2.26.3 Other expenses All other operating expenses are recognized directly in profit or loss and when incurred.
3 Critical accounting judgments and key sources of estimation uncertainty IntheapplicationoftheCompany’saccountingpolicies,theDirectorsarerequiredtomakejudgments,estimatesandassumptions aboutthecarryingamountsofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Theestimatesand associatedassumptionsarebasedonhistoricalexperienceandotherfactorsthatareconsideredtoberelevant.Actualresults may differ from these estimates.
Theestimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognisedin theperiodinwhichtheestimateisrevisediftherevisionaffectsonlythatperiodorintheperiodoftherevisionandfutureperiods if the revision affects both current and future periods.
Critical judgments in applying the Company’s accounting policies Thefollowingarethecriticaljudgments,apartfromthoseinvolvingestimations(whicharedealtwithseparatelybelow),thatthe directorshavemadeintheprocessofapplyingtheCompany’saccountingpoliciesandthathavethemostsignificanteffectonthe amounts recognized in financial statements.
Going Concern Thefinancialstatementshavebeenpreparedonthegoingconcernbasisandthereisnointentiontocurtailbusinessoperations. Capitaladequacy,profitabilityandliquidityratiosarecontinuouslyreviewedandappropriateactiontakentoensurethatthereare no going concern threats to the operation of the Company.
TheDirectorshavemadeassessmentoftheCompany'sabilitytocontinueasagoingconcernandhavenoreasontobelievethat the Company will not remain a going concern in the years ahead.
Property lease classification – Company as lessor TheCompanyhasenteredintocommercialpropertyleasesonitsinvestmentpropertyportfolio.TheCompanyhasdetermined, basedonanevaluationofthetermsandconditionsofthearrangements,suchastheleasetermnotconstitutingamajorpartof theeconomiclifeofthecommercialpropertyandthepresentvalueoftheminimumleasepaymentsnotamountingtosubstantially allofthefairvalueofthecommercialproperty,thatitretainsallthesignificantrisksandrewardsofownershipoftheseproperties and accounts for the contracts as operating leases.
38 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
3 Critical accounting judgments and key sources of estimation uncertainty - continued
Product classification and contract liabilities TheCompany’sNon-lifeinsurancecontractsareclassifiedasinsurancecontracts.AspermittedbyIFRS4,assetsandliabilitiesof these contracts are accounted for under previously applied GAAP.
Insurance contracts are those contracts when the Company (the insurer) has accepted significant insurance risk from another party(thepolicyholders)byagreeingtocompensatethepolicyholdersifaspecifieduncertainfutureevent(theinsuredevent) adverselyaffectsthepolicyholders.Asageneralguideline,theCompanydetermineswhetherithassignificantinsurancerisk,by comparingbenefitspaidwithbenefitspayableiftheinsuredeventdidnotoccur.Insurancecontractscanalsotransferfinancial risk.Onceacontracthasbeenclassifiedasaninsurancecontract,itremainsaninsurancecontractfortheremainderofits lifetime,eveniftheinsuranceriskreducessignificantlyduringthisperiod,unlessallrightsandobligationsareextinguishedor expire.Investmentcontractscan,however,bereclassifiedasinsurancecontractsafterinceptionifinsuranceriskbecomes significant.
Key sources of estimation uncertainty Thekeyassumptionsconcerningthefuture,andotherkeysourcesofestimationuncertaintyatthereportingdate,thathavea significantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyear,are discussed below:
Valuation of liabilities of non-life insurance contracts Estimatesaremadeforboththeexpectedultimatecostofclaimsreportedandclaimsincurredbutnotreported(IBNR)atthe statementoffinancialpositiondate.TheestimateofIBNRisgenerallysubjecttoagreaterdegreeofuncertaintythanthatfor reportedclaims.Theultimatecostofoutstandingclaimsisestimatedbyusingarangeofstandardactuarialclaimsprojection techniques, such as the Chain Ladder, Stochastic reserving (Bootstrap) and Bornheutter-Ferguson methods.
The main assumption underlying these techniques is that a Company’s past claims development experience can be used to project futureclaimsdevelopmentandhenceultimateclaimscosts.Assuch,thesemethodsextrapolatethedevelopmentofpaidand incurredlosses,averagecostsperclaimandclaimnumbersbasedontheobserveddevelopmentofearlieryearsandexpectedloss ratios.Historicalclaimsdevelopmentismainlyanalysedbyaccidentyears,butcanalsobefurtheranalysedbygeographicalarea, aswellasbysignificantbusinesslinesandclaimtypes.Largeclaimsareusuallyseparatelyaddressed,eitherbybeingreservedat thefacevalueoflossadjusterestimatesorseparatelyprojectedinordertoreflecttheirfuturedevelopment.Additionalqualitative judgementisusedtoassesstheextenttowhichpasttrendsmaynotapplyinfuture,(e.g.,toreflectone-offoccurrences,changes inexternalormarketfactorssuchaspublicattitudestoclaiming,economicconditions,levelsofclaimsinflation,judicialdecisions andlegislation,aswellasinternalfactorssuchasportfoliomix,policyfeaturesandclaimshandlingprocedures)inordertoarrive attheestimatedultimatecostofclaimsthatpresentthelikelyoutcomefromtherangeofpossibleoutcomes,takingaccountofall the uncertainties involved.
Similarjudgements,estimatesandassumptionsareemployedintheassessmentofadequacyofprovisionsforunearnedpremium. Judgementisalsorequiredindeterminingwhetherthepatternofinsuranceserviceprovidedbyacontractrequiresamortisation of unearned premium on a basis other than time apportionment.
The carrying amount for non-life insurance contract liabilities at the reporting date is ₦3.089 billion (2017: ₦3.261 billion).
Fair value of financial instruments using valuation techniques
TheDirectorsusetheirjudgmentinselectinganappropriatevaluationtechnique.Wherepossible,financialinstrumentsare markedatpricesquotedinactivemarkets.Inthecurrentmarketenvironment,suchpriceinformationistypicallynotavailablefor allinstrumentsandthecompanyusesvaluationtechniquestomeasuresuchinstruments.Thesetechniquesuse“market observableinputs”whereavailable,derivedfromsimilarassetsinsimilarandactivemarkets,fromrecenttransactionpricesfor comparableitemsorfromotherobservablemarketdata.Forpositionswhereobservablereferencedataarenotavailableforsome or all parameters the company estimates the non-market observable inputs used in its valuation models.
Otherfinancialinstrumentsarevaluedusingadiscountedcashflowanalysisbasedonassumptionssupported,wherepossible,by observable market prices or rates although some assumptions are not supported by observable market prices or rates.
39 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
3 Critical accounting judgments and key sources of estimation uncertainty - continued
Impairment under IFRS 9 The impairment requirements of IFRS 9 apply to all debt instruments that are measured at amortised cost.
Thedeterminationofimpairmentlossandallowancemovesfromtheincurredcreditlossmodelwherebycreditlossesare recognisedwhenadefinedlosseventoccursunderIAS39,toexpectedcreditlossmodelunderIFRS9,whereexpectedcredit lossesarerecogniseduponinitialrecognitionofthefinancialassetbasedonexpectationofpotentialcreditlossesatthetimeof initial recognition.
Staged Approach to the Determination of Expected Credit Losses IFRS9outlinesathree-stagemodelforimpairmentbasedonchangesincreditqualitysinceinitialrecognition.Thesestagesareas outlined below:
Stage1:TheCompanyrecognisesacreditlossallowanceatanamountequaltothe12monthexpectedcreditlosses.This representstheportionoflifetimeexpectedcreditlossesfromdefaulteventsthatareexpectedwithin12monthsofthereporting date, assuming that credit risk has not increased significantly after the initial recognition.
Stage2:TheCompanyrecognisesacreditlossallowanceatanamountequaltothelifetimeexpectedcreditlosses(LTECL)for thosefinancialassetsthatareconsideredtohaveexperiencedasignificantincreaseincreditrisksinceinitialrecognition.This requiresthecomputationofECLbasedonLifetimeprobabilitiesofdefaultthatrepresentstheprobabilityofadefaultoccurring overtheremaininglifetimeofthefinancialassets.Allowanceforcreditlossesishigherinthisstagebecauseofanincreasein credit risk and the impact of a longer time horizon being considered compared to 12 months in stage 1.
Stage 3: The Company recognises a loss allowance at an amount equal to life-time expected credit losses, reflecting a probability ofdefault(PD)of100%viatherecoverablecashflowsfortheasset.Forthosefinancialassetsthatarecreditimpaired.The Company'sdefinitionofdefaultisalignedwiththeregulatorydefinition.Thetreatmentoftheloansandotherreceivablesinstage 3remainssubstantiallythesameasthetreatmentofimpairedfinancialassetsunderIAS39exceptfortheportfoliosofassets purchased or originated as credit impaired
Thedeterminationofwhetherafinancialassetiscreditimpairedfocusesexclusivelyondefaultrisk,withouttakinginto considerationtheeffectofcreditriskmitigantssuchascollateralorguarantees.Specifically,thefinancialassetiscreditimpaired andinstage3when:theGroupconsiderstheobligorisunlikelytopayitscreditobligationstothecompany.Theterminationmay includeforbearanceactions,whereaconcessionhasbeengrantedtotheborroweroreconomicorlegalreasonsthataqualitative indicatorsofcreditimpairment;orcontractualpaymentsofeitherprincipalorinterestbytheobligorarepassduebymorethan 90 days.
Forfinancialassetsconsideredtobecreditimpaired,theECLallowancecoverstheamountoflosstheCompanyisexpectedto suffer.TheestimationofECLsisdoneonacasebycasebasisfornon-homogenousportfolios,orbyapplyingportfoliobased parameters to individual financial assets in this portfolios by the Company’s ECL model for homogenous portfolios.
ForecastoffutureeconomicconditionswhencalculatingECLsareconsidered.Thelifetimeexpectedlossesareestimatedbased on the probability – weighted present value of the difference between: 1) The contractual cash flows that are due to the Company under the contract; and 2) The cash flows that the Company expects to receive.
Elements of ECL models that are considered accounting judgements and estimates include: •TheCompany’scriteriaforassessingiftherehasbeenasignificantincreaseincreditriskandsoallowancesforfinancialassets should be measured on a LTECL basis and the qualitative assessment • The development of ECL models, including the various formulas and the choice of inputs Determinationofassociationsbetweenmacroeconomicscenariosand,economicinputs,suchasunemploymentlevels,interest rate,GrossDomesticProduct(GDP)andcollateralvalues,andtheeffectonProbabilityofDefault(PDs),ExposureatDefaults (EADs) and Lost Given Defaults (LGDs). •Selectionofforward-lookingmacroeconomicscenariosandtheirprobabilityweightings,toderivetheeconomicinputsintothe ECL models. Expected lifetime: Theexpectedlifetimeofafinancialassetisakeyfactorindeterminethelifetimeexpectedcreditlosses.Lifetimeexpectedcredit lossesrepresentsdefaulteventsovertheexpectedlifeofafinancialasset.Thecompanymeasuresexpectedcreditlosses consideringtheriskofdefaultoverthemaximumcontractualperiod(includinganyborrower’sextensionoption)overwhichitis exposed to credit risk.
40 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4 Standards issued but not yet effective
Thestandardsandinterpretationsthatareissued,butnotyeteffective,uptothedateofissuanceoftheCompany’sfinancial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.
IFRS 16 – Leases IFRS16wasissuedinJanuary2016anditreplacesIAS17Leases,IFRIC4DeterminingwhetheranArrangementcontainsa Lease,SIC-15OperatingLeases-IncentivesandSIC-27EvaluatingtheSubstanceofTransactionsInvolvingtheLegalFormofa Lease.IFRS16setsouttheprinciplesfortherecognition,measurement,presentationanddisclosureofleasesandrequires lesseestoaccountforallleasesunderasingleon-balancesheetmodelsimilartotheaccountingforfinanceleasesunderIAS17. Thestandardincludestworecognitionexemptionsforlessees–leasesof’low-value’assets(e.g.,personalcomputers)andshort- termleases(i.e.,leaseswithaleasetermof12monthsorless).Atthecommencementdateofalease,alesseewillrecognisea liabilitytomakeleasepayments(i.e.,theleaseliability)andanassetrepresentingtherighttousetheunderlyingassetduringthe leaseterm(i.e.,theright-of-useasset).Lesseeswillberequiredtoseparatelyrecognisetheinterestexpenseontheleaseliability and the depreciation expense on the right-of-use asset.
Lesseeswillalsoberequiredtoremeasuretheleaseliabilityupontheoccurrenceofcertainevents(e.g.,achangeinthelease term,achangeinfutureleasepaymentsresultingfromachangeinanindexorrateusedtodeterminethosepayments).The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
LessoraccountingunderIFRS16issubstantiallyunchangedfromtoday’saccountingunderIAS17.Lessorswillcontinueto classifyallleasesusingthesameclassificationprincipleasinIAS17anddistinguishbetweentwotypesofleases:operatingand finance leases.
IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS17.
IFRS16iseffectiveforannualperiodsbeginningonorafter1January2019.Alesseecanchoosetoapplythestandardusing either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs.
In applying IFRS 16 for the first time, the Company will use the following practical expedients permitted by the standard: •theaccountingforoperatingleaseswitharemainingleasetermoflessthan12monthsasat1January2018asshort-term leases
TheCompanyplanstoadoptIFRS16usingmodifiedretrospectiveapproach.TheCompanyhasalsoelectednottoapplyIFRS16 tocontractsthatwerenotidentifiedascontainingaleaseunderIAS17andIFRIC4DeterminingwhetheranArrangement contains a Lease.
Thus, the adoption of IFRS 16 in 2019 will not have any material impact on the Company.
IFRS 17 Insurance Contracts
InMay2017,theIASBissuedIFRS17InsuranceContracts,acomprehensivenewaccountingstandardforinsurancecontracts covering recognition and measurement, presentation and disclosure, which replaces IFRS 4 Insurance Contracts.
In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies for measurementpurposes,IFRS17providesacomprehensivemodel(thegeneralmodel)forinsurancecontracts,supplementedby thevariablefeeapproachforcontractswithdirectparticipationfeaturesthataresubstantiallyinvestment-relatedservice contracts,andthepremiumallocationapproachmainlyforshort-durationwhichtypicallyappliestocertainnon-lifeinsurance contracts.
41 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4 Standards issued but not yet effective - Continued
IFRS 17 Insurance Contracts - continued The main features of the new accounting model for insurance contracts are, as follows: •Themeasurementofthepresentvalueoffuturecashflows,incorporatinganexplicitriskadjustment,remeasuredevery reporting period (the fulfilment cash flows) •AContractualServiceMargin(CSM)thatisequalandoppositetoanydayonegaininthefulfilmentcashflowsofagroupof contracts.TheCSMrepresentstheunearnedprofitabilityoftheinsurancecontractsandisrecognisedinprofitorlossoverthe service period (i.e., coverage period) •CertainchangesintheexpectedpresentvalueoffuturecashflowsareadjustedagainsttheCSMandtherebyrecognisedinprofit or loss over the remaining contractual service period. •Theeffectofchangesindiscountrateswillbereportedineitherprofitorlossorothercomprehensiveincome,determinedbyan accounting policy choice •Therecognitionofinsurancerevenueandinsuranceserviceexpensesinthestatementofcomprehensiveincomebasedonthe concept of services provided during the period •Amountsthatthepolicyholderwillalwaysreceive,regardlessofwhetheraninsuredeventhappens(non-distinctinvestment components) are not presented in profit or loss, but are recognised directly on the statement of financial position. •Insuranceservicesresults(earnedrevenuelessincurredclaims)arepresentedseparatelyfromtheinsurancefinanceincomeor expense •Extensivedisclosurestoprovideinformationontherecognisedamountsfrominsurancecontractsandthenatureandextentof risks arising from these contracts
IFRS 17 is effective for annual reporting periods beginning on or after 1 January 2022, with comparative figures required. Early applicationispermitted,providedtheentityalsoappliesIFRS9andIFRS15onorbeforethedateitfirstappliesIFRS17. Retrospectiveapplicationisrequired.However,iffullretrospectiveapplicationforagroupofinsurancecontractsisimpracticable, then the entity is required to choose either a modified retrospective approach or a fair value approach.
TheCompanystartedaprojecttoimplementIFRS17andhasbeenperformingahigh-levelimpactassessmentofIFRS17.The Companyexpectsthatthenewstandardwillresultinanimportantchangetotheaccountingpoliciesforinsurancecontract liabilitiesoftheCompanyandislikelytohaveasignificantimpactonprofitandtotalequitytogetherwithpresentationand disclosure.
IFRIC Interpretation 23 Uncertainty over Income Tax Treatment TheInterpretationaddressestheaccountingforincometaxeswhentaxtreatmentsinvolveuncertaintythataffectstheapplication ofIAS12anddoesnotapplytotaxesorleviesoutsidethescopeofIAS12,nordoesitspecificallyincluderequirementsrelatingto interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: • Whether an entity considers uncertain tax treatments separately • The assumptions an entity makes about the examination of tax treatments by taxation authorities • How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates • How an entity considers changes in facts and circumstances
Anentityhastodeterminewhethertoconsidereachuncertaintaxtreatmentseparatelyortogetherwithoneormoreother uncertaintaxtreatments.Theapproachthatbetterpredictstheresolutionoftheuncertaintyshouldbefollowed.The interpretationiseffectiveforannualreportingperiodsbeginningonorafter1January2019,butcertaintransitionreliefsare available.TheCompanydoesnotexpecttheapplicationofthisinterpretationtoaffectitsfinancialstatementsasfromitseffective date since the Company does not operate in a complex multinational tax environment.
Amendments to IFRS 9: Prepayment Features with Negative Compensation UnderIFRS9,adebtinstrumentcanbemeasuredatamortisedcostoratfairvaluethroughothercomprehensiveincome, providedthatthecontractualcashflowsare‘solelypaymentsofprincipalandinterestontheprincipalamountoutstanding’(the SPPIcriterion)andtheinstrumentisheldwithintheappropriatebusinessmodelforthatclassification.TheamendmentstoIFRS9 clarifythatafinancialassetpassestheSPPIcriterionregardlessoftheeventorcircumstancethatcausestheearlyterminationof the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract.
Theamendmentsshouldbeappliedretrospectivelyandareeffectivefrom1January2019,withearlierapplicationpermitted. These amendments have no impact on the financial statements of the Company.
42 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4 Standards issued but not yet effective - Continued
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture TheamendmentsaddresstheconflictbetweenIFRS10andIAS28indealingwiththelossofcontrolofasubsidiarythatissoldor contributedtoanassociateorjointventure.Theamendmentsclarifythatthegainorlossresultingfromthesaleorcontributionof assetsthatconstituteabusiness,asdefinedinIFRS3,betweenaninvestoranditsassociateorjointventure,isrecognisedinfull. Anygainorlossresultingfromthesaleorcontributionofassetsthatdonotconstituteabusiness,however,isrecognisedonlyto theextentofunrelatedinvestors’interestsintheassociateorjointventure.TheIASBhasdeferredtheeffectivedateofthese amendmentsindefinitely,butanentitythatearlyadoptstheamendmentsmustapplythemprospectively.TheCompanywillapply these amendments when they become effective.
Amendments to IAS 19: Plan Amendment, Curtailment or Settlement TheamendmentstoIAS19addresstheaccountingwhenaplanamendment,curtailmentorsettlementoccursduringareporting period.Theamendmentsspecifythatwhenaplanamendment,curtailmentorsettlementoccursduringtheannualreporting period, an entity is required to: •Determinecurrentservicecostfortheremainderoftheperiodaftertheplanamendment,curtailmentorsettlement,usingthe actuarialassumptionsusedtoremeasurethenetdefinedbenefitliability(asset)reflectingthebenefitsofferedundertheplanand the plan assets after that event •Determinenetinterestfortheremainderoftheperiodaftertheplanamendment,curtailmentorsettlementusing:thenet definedbenefitliability(asset)reflectingthebenefitsofferedundertheplanandtheplanassetsafterthatevent;andthediscount rate used to remeasure that net defined benefit liability (asset).
Theamendmentsalsoclarifythatanentityfirstdeterminesanypastservicecost,oragainorlossonsettlement,without consideringtheeffectoftheassetceiling.Thisamountisrecognisedinprofitorloss.Anentitythendeterminestheeffectofthe assetceilingaftertheplanamendment,curtailmentorsettlement.Anychangeinthateffect,excludingamountsincludedinthe net interest, is recognised in other comprehensive income.
Theamendmentsapplytoplanamendments,curtailments,orsettlementsoccurringonorafterthebeginningofthefirstannual reportingperiodthatbeginsonorafter1January2019,withearlyapplicationpermitted.Theseamendmentswillnotapplytothe Companyasitdoesnothaveanyemployeebenefitthatincludefutureplanamendments,curtailments,orsettlementsasthe current plan is already winding down and no longer active.
Amendments to IAS 28: Long-term interests in associates and joint ventures TheamendmentsclarifythatanentityappliesIFRS9tolong-terminterestsinanassociateorjointventuretowhichtheequity methodisnotappliedbutthat,insubstance,formpartofthenetinvestmentintheassociateorjointventure(long-term interests).ThisclarificationisrelevantbecauseitimpliesthattheexpectedcreditlossmodelinIFRS9appliestosuchlong-term interests.
Theamendmentsalsoclarifiedthat,inapplyingIFRS9,anentitydoesnottakeaccountofanylossesoftheassociateorjoint venture,oranyimpairmentlossesonthenetinvestment,recognisedasadjustmentstothenetinvestmentintheassociateorjoint venture that arise from applying IAS 28 Investments in Associates and Joint Ventures.
Theamendmentsshouldbeappliedretrospectivelyandareeffectivefrom1January2019,withearlyapplicationpermitted.Since theCompanydoesnothavesuchlong-terminterestsinitsassociateandjointventure,theamendmentswillnothaveanimpacton its financial statements.
Annual Improvements 2015-2017 Cycle (issued in December 2017) These improvements include: • IFRS 3 Business combinations - Previously held interest in a joint operation Theamendmentsclarifythat,whenanentityobtainscontrolofabusinessthatisajointoperation,itappliestherequirementsfor abusinesscombinationachievedinstages,includingremeasuringpreviouslyheldinterestsintheassetsandliabilitiesofthejoint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation.
43 SOVEREIGN TRUST INSURANCE PLC SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4 Standards issued but not yet effective - Continued
Annual Improvements 2015-2017 Cycle (issued in December 2017) Anentityappliesthoseamendmentstobusinesscombinationsforwhichtheacquisitiondateisonorafterthebeginningofthe firstannualreportingperiodbeginningonorafter1January2019,withearlyapplicationpermitted.Theseamendmentswillnot have an impact on the Company’s financial statements.
• IFRS 11 Joint Arrangements Apartythatparticipatesin,butdoesnothavejointcontrolof,ajointoperationmightobtainjointcontrolofthejointoperationin whichtheactivityofthejointoperationconstitutesabusinessasdefinedinIFRS3.Theamendmentsclarifythatthepreviously held interests in that joint operation are not remeasured.
Anentityappliesthoseamendmentstotransactionsinwhichitobtainsjointcontrolonorafterthebeginningofthefirstannual reportingperiodbeginningonorafter1January2019,withearlyapplicationpermitted.Theseamendmentsarecurrentlynot applicable to the Company but may apply to future transactions.
• IAS 12 Income Taxes Theamendmentsclarifythattheincometaxconsequencesofdividendsarelinkedmoredirectlytopasttransactionsorevents thatgenerateddistributableprofitsthantodistributionstoowners.Therefore,anentityrecognisestheincometaxconsequences ofdividendsinprofitorloss,othercomprehensiveincomeorequityaccordingtowheretheentityoriginallyrecognisedthosepast transactions or events.
Anentityappliesthoseamendmentsforannualreportingperiodsbeginningonorafter1January2019,withearlyapplicationis permitted.Whenanentityfirstappliesthoseamendments,itappliesthemtotheincometaxconsequencesofdividends recognisedonorafterthebeginningoftheearliestcomparativeperiod.SincetheCompany’scurrentpracticeisinlinewiththese amendments, the Company does not expect any effect on its financial statements.
• IAS 23 Borrowing Costs Theamendmentsclarifythatanentitytreatsaspartofgeneralborrowingsanyborrowingoriginallymadetodevelopaqualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete.
Anentityappliesthoseamendmentstoborrowingcostsincurredonorafterthebeginningoftheannualreportingperiodinwhich theentityfirstappliesthoseamendments.Anentityappliesthoseamendmentsforannualreportingperiodsbeginningonorafter 1January2019,withearlyapplicationpermitted.SincetheCompany’scurrentpracticeisinlinewiththeseamendments,the Company does not expect any effect on its financial statements.
The following are other pronouncement that are issued as of December 2018 with effective date of 1 January 2020.
• Definition of a Business - Amendments to IFRS 3 • Definition of Material - Amendments to IAS 1 and IAS 8 • Amendments to The Conceptual Framework for Financial Reporting
44
SOVEREIGN TRUST INSURANCE PLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5 IFRS 9 Transition disclosures
I IFRS9FinancialInstrumentsreplacesIAS39FinancialInstruments:RecognitionandMeasurementforannualperiodsbeginningonorafter1January2018,bringingtogetherallthree aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.
TheCompanyappliedIFRS9prospectively,withaninitialapplicationdateof1January2018.TheCompanyhasnotrestatedthecomparativeinformation,whichcontinuestobereported under IAS 39. Differences arising from the adoption of IFRS 9 have been recognised directly in retained earnings and other components of equity.
A reconciliation between the carrying amounts under IAS 39 to the balances reported under IFRS 9 as of 1 January 2018 is, as follows:
IAS 39 Measurement Re- Remeasurement IFRS 9 in thousands of Nigerian Naira Rf Category Amount classification ECL Other Amount Category
Cash and cash equivalents L&R 3,400,291 - ( 8,898) - 3,391,393 AC
Debt instruments at amortised cost - 677,937 (24,201) 7,117 660,853 AC From: financial instruments - HTM A - 160,601 (771) - From: Financial instrument - AFS (listed debt instrument) C 477,080 ( 4,170) 7,117 From: Loans and advance A 40,256 (19,260) -
Financial instrument - AFS (unlisted equity investment) AFS 62,091 ( 62,091) - - - Financial instrument - AFS (listed equity investment) AFS 70,206 ( 70,206) - - - To: Equity instruments at fair value through OCI B - (132,297) - -
Equity instruments at fair value through OCI - 132,297 - 2,269 134,566 FVOCI From: AFS (unlisted equity investment) B - 62,091 - 2,269 From: AFS (listed equity investment) B - 70,206 - -
Financial instrument - HTM 160,601 (160,601) - To: Debt instruments at amortised cost A - (160,601) - -
Financial instrument - AFS (listed debt investment) AFS 477,080 (477,080) - - - To: Debt instruments at amortised cost A - (477,080) - -
Loans and advances 40,256 ( 40,256) - - - To: Debt instruments at amortised cost A - ( 40,256) - -
Equity held for trading FVTPL 165,188 - - - 165,188 *FVTPL 4,375,713 - (33,099) 9,387 4,186,812
FVOCI - Fair value through Other Comprehensive Income AC - Amortised costs *FVTPL (mandatory) - Fair value through profit or loss L&R - Loans and Receivables AFS - Available for sale
45
SOVEREIGN TRUST INSURANCE PLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5 Transition disclosures - Continued
Asof1January2018,theCompanydidnothaveanydebtinstrumentsthatdidnotmeettheSPPIcriterionwithinitsheld-to-maturityportfolio.Therefore,itelectedtoclassifyallofthese A instruments as debt instruments measured at amortised cost. B The Company has elected the option to irrevocably designate some if its previous AFS equity instruments as Equity instruments at FVOCI.
Asof1January2018,theCompanyhasclassifiedaportionofitspreviousAFSportfolioasdebtinstrumentsatamortisedcost.TheseinstrumentsmettheSPPIcriterion, werenotactivelytradedandwereheldwiththeintentiontocollectcashflowsandwithouttheintentiontosell.ThefairvalueoftheseinstrumentsthatBankstillheldat31December C 2018wasN477,080,000.Theirchangeinfairvalueover2018,thatwouldhavebeenrecordedinOCIhadtheseinstrumentscontinuedtoberevaluedthroughOCIisNil,sincethereisno such intruments at year end. The impact of transition to IFRS 9 on reserves and retained earnings is, as follows: Accumulared Fair value in thousands of Nigerian Naira earning reserve
Closing balance under IAS 39 (31 December 2017) ( 1,402,651) 4,949 Re-measurement impact of unquoted equity instruments initially at cost to fair value - 2,269 Reversal of fair value loss on treasury bills reclassification to debt instruments at fair value to - 7,117 amortised cost from available-for-sale Recognition of IFRS 9 ECLs on amortised instrument (see below) ( 33,099) - Deferred tax in relation to the above 8,447 - Opening balance under IFRS 9 (1 January 2018) ( 1,427,303) 14,336
Total change in equity due to adopting IFRS 9 ( 24,652) 9,387 ii IFRS 9 Transition disclosures The following table reconciles the aggregate opening provision allowances under IAS 39 and provisions for debt instruments at amotised cost to the ECL allowances under IFRS 9. Impact of recognition of IFRS 9 ECLs Impact of remeasurement to FVPL ECLs under ECLs under Provision Re- IFRS 9 Carrying amount Re- IFRS 9 in thousands of Nigerian Naira under IAS 39 measurement 1 Jan 2018 under IAS 39 measurement 1 Jan 2018 Loans and trade receivables and held to maturity securities per IAS 39/financial assets at amortised cost under IFRS 9 Short-term deposits - 8,898 8,898 Debt instrument at amortised cost under IFRS 9 Bonds - 771 771 195,386 (4,043) 191,343 Treasury bills - 4,170 4,170 Corporate loan - 10,000 10,000 Mortgage loan - 9,260 9,260 - 33,099 33,099 195,386 (4,043) 191,343
46 SOVEREIGN TRUST INSURANCE PLC STATEMENT OF PROFIT OR LOSS
For the year ended 31 December 2018 in thousands of Nigerian Naira Notes 2018 2017
Gross premium written 6 10,513,078 8,513,503
Gross premium income 6 10,338,077 8,300,968 Premiums ceded to reinsurers 6 (5,276,700) ( 4,448,446)
Net premium income 5 ,061,377 3,852,522
Commission income 7 362,602 301,587
Net underwriting income 5 ,423,979 4,154,109
Net claims expenses 8 (1,787,492) ( 1,303,145) Underwriting expenses 9 (1,713,520) ( 1,640,653)
Underwriting profit 44 1 ,922,967 1,210,311
Investment income 10 334,495 326,676 Fair value gain on quoted equities 16.3 13 ,666 40 ,549 Realised loss on investment property ( 7,000) - Realised loss on equities ( 1,001) - Share of profit from associate 20.1 10 ,256 4,321 Fair value gain on investment properties 21 39 ,057 34 ,826 Other operating income 11 1,000 239,402 Management expenses 12 (1,659,542) ( 1,531,911)
Result of operating activities 653,898 324,174
Finance costs Interest on borrowing 28 (88,487) (78,356) Interest on bank overdraft 13 (24,857) (43,124)
Profit before income tax 540,554 202,694
Income tax expense 13 (196,318) (44,825)
Profit after income tax 344,236 157,869
Earnings per share:
Basic and diluted (kobo) 14 4.13 1.89
The accompanying summary of significant accounting policies and notes to the financial statements are an integral part of these financial statements.
47 SOVEREIGN TRUST INSURANCE PLC STATEMENT OF OTHER COMPREHENSIVE INCOME
For the year ended 31 December 2018 in thousands of Nigerian Naira Notes 2018 2017
Profit after income tax 344 ,236 157,869
Other comprehensive income:
Net other comprehensive income to be reclassified to profit or loss in subsequent periods Net gain arising from available for sale financial assets 16.3 - 8,933 - 8,933
Other comprehensive income not to be reclassified to profit or loss in subsequent periods
Actuarial gain in defined gratuity scheme 32.2 19 ,175 28,370 Effect of tax at 30% 25.2 (5,753) ( 8,511) 13,422 19,859
Revaluation gain on building 24 - 71 ,164 Effect of tax at 30% 25.2 - (21,349) - 49,815
Net gain on unquoted equity instruments at fair value through other comprehensive income 16.3 6,058 - 6,058 -
Net other comprehensive income not to be reclassified to profit or loss in subsequent periods 19,480 69,674
Total other comprehensive income for the year, net of tax 19,480 78,607
Total comprehensive income for the year, net of tax 363 ,716 236,476
Theaccompanyingsummaryofsignificantaccountingpoliciesandnotestothefinancialstatementsarean integral part of these financial statements.
48
SOVEREIGN TRUST INSURANCE PLC STATEMENT OF CHANGES IN EQUITY Issued and paid up Share Contingency Revaluation Fair value Accumulated Total in thousands of Nigerian Naira Note share capital premium reserve reserve reserve losses equity
As at 1 January 2017 4 ,170,412 116 ,843 2 ,077,191 175,288 ( 3,984) ( 1,300,322) 5,235,428
Profit after income tax for the year - - - - - 157 ,869 157 ,869 Other comprehensive income - - - 49 ,815 8,933 19 ,859 78,607 Total comprehensive income for the year - - - 49 ,815 8,933 177 ,728 236 ,476
Transfer to contingency reserve 33.3 - - 255,405 - - (255,405) - As at 31 December 2017 4 ,170,412 116 ,843 2 ,332,596 225,103 4,949 ( 1,377,999) 5,471,904
Impact of adopting IFRS 9 5 - - - - 9,387 ( 24,652) ( 15,265) Restated opening balance under IFRS 9 4 ,170,412 116 ,843 2 ,332,596 225,103 14 ,336 ( 1,402,651) 5,456,639
Profit after income tax for the year - - - - - 344 ,236 344 ,236 Other comprehensive income - - - - 6,058 13 ,422 19,480 Total comprehensive income for the year - - - - 6,058 357 ,658 363 ,716
Transfer to contingency reserve 33.3 - - 315,392 - - (315,392) -
As at 31 December 2018 4,170,412 116 ,843 2,647,988 225 ,103 20,394 (1,360,385) 5,820,355
The accompanying summary of significant accounting policies and notes to the financial statements are an integral part of these financial statements.
50 SOVEREIGN TRUST INSURANCE PLC STATEMENT OF CASH FLOWS
For the year ended 31 December 2018 in thousands of Nigerian Naira Notes 2018 2017
Operating activities: Premium received from policy holders 10,462,094 8,492,283 Claims recovered from to reinsurers 8 2,495,575 425,725 Cash paid to and on behalf of employees 12.1 (892,184) ( 870,763) Reinsurance premium paid ( 5,077,729) ( 4,098,040) Fees and commission Income 7 362,602 301,587 Commission paid 9 ( 1,208,025) ( 1,148,514) Other operating cash payments (804,529) ( 1,035,499) Investment income 10 334,495 326,109 Claims paid 27.1 ( 4,243,641) ( 1,990,761) Gratuity benefit paid to employees 32.2 ( 82,806) ( 2,173) Company income tax paid 25.1 ( 26,086) ( 19,244) Net cash flows from operating activities 35 1,319,766 380,710 1,319,766 380,710 Investing activities: Purchase of property, plant and equipment 24 (244,508) ( 169,903) Purchase of intangible assets 22 ( 6,347) ( 12,000) Receipts from loans 2,696 14,183 Purchase of debt instrument at amortised cost 16.3 ( 66,903) ( 20,000) Proceeds from bonds maturity 28,099 1,736 Proceeds on sale of property, plant and equipment 1,000 379,999 Purchase of investment properties 21 - ( 5,301) Proceeds from disposal of investment properties 65,000 60,000 Purchase of quoted stock 16.3 (105,458) ( 22,456) Proceeds from disposal of quoted stock 114,637 97,698 Purchase of treasury bills 16.3 - ( 433,899) Proceed on treasury bill maturity 484,197 21,380 Net cash flows from/(used in) in investing activities 272,413 ( 88,563)
Net increase in cash and cash equivalents 1,592,179 292,147 Net foreign exchange difference - 122,557
Cash and cash equivalents at 1 January 34 3,321,394 2,906,690 Cash and cash equivalents at 31 December 34 4,913,572 3,321,394
Theaccompanyingsummaryofsignificantaccountingpoliciesandnotestothefinancialstatementsareanintegralpartof these financial statements.
51 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS 6 Net premium income
Premium earned by principal class of business 2018 2017 in thousands of Nigerian Naira Premium Reinsurance Net Premium Reinsurance Net
Motor 1,591,681 (5,604) 1,586,077 1,393,997 (31,097) 1 ,362,900 Fire and property 1,720,061 (765,008) 955,053 1,536,506 (540,044) 996,462 General accident 1,071,432 (410,824) 660,608 793 ,698 (258,580) 535,118 Marine and aviation 574,468 (211,882) 362,586 881 ,705 (475,579) 406,126 Oil and gas 3,851,335 (2,783,835) 1,067,500 3,348,894 (2,584,322) 764,572 Car and engineering 1,704,101 (857,237) 846,864 558 ,703 (265,040) 293,663 Gross premium written 10 ,513,078 (5,034,390) 5,478,688 8,513,503 (4,154,661) 4 ,358,842
Changes in unearned premium (175,001) (242,310) (417,311) (212,535) (293,785) (506,320)
Total premium income 10 ,338,077 (5,276,700) 5,061,377 8,300,968 (4,448,446) 3 ,852,522
7 Commission income
in thousands of Nigerian Naira 2018 2017
Oil and gas 175 ,067 142,576 Fire and property 53,195 59,872 General accident 44,356 51,658 Marine and aviation 30,104 27,471 Car and engineering 59,880 19,640 Motor - 370 362 ,602 301,587 362,602 301,587 Commission income represents commission received on direct business and transactions ceded to re-insurance during the year. It is recognised over the life of the contract.
52 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
8 Net claims expenses
in thousands of Nigerian Naira Notes 2018 2017
Gross claims paid 27.1 4,243,641 1,990,761 Changes in outstanding claims provision 27.1 ( 346,682) 209,384 3,896,959 2,200,145 Re-insurance recoverable: Claims recoveries (2,495,575) ( 425,725) Changes in outstanding claims due from reinsurers 386,108 ( 471,275) 1,787,492 1,303,145
9 Underwriting expenses
Acquisition costs incurred: Commission paid 1,208,025 1,148,514 Changes in deferred acquisition costs 212,175 57,227 Commission incurred 1,420,200 1,205,741
Maintenance cost 293,320 434,912 1,713,520 1,640,653
Maintenancecostscompriseofunderwritingsurvey,Motortrackingexpensesandotherrelatedunderwritingexpensesother than commission payable on premium income.
10 Investment income
in thousands of Nigerian Naira Notes 2018 2017
Interest income 325,286 311,813 Dividend income 3,406 14,296 Rental income from investment properties 5,803 567 334,495 326,676
Included in interest income is ₦6 million (2017: ₦1.7 million ) interest accrued on loans to corporate organisation.
11 Other operating income
Gain on disposal of property, plant and equipment 1,000 56,838 Net foreign exchange gain - 122,557 Sundry income 11.1 - 60,007 1,000 239,402
11.1 Sundry income SundryincomeinprioryearrepresentStampdutythatwaspreviouslyoverchargedbyFederalInlandRevenueServicesnow recovered by NAICOM.
53 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
12 Management expenses
in thousands of Nigerian Naira Notes 2018 2017
Employee benefits expense 12.1 892,184 870,763 Other expenses 12.3 542,918 433,892 Depreciation on property, plant and 24 162,691 151,516 equipment Exchange difference on Daewoo Bond 28 22,954 33,107 Credit loss expenses 12.2 1,325 - Directors fee and allowance 17,857 15,346 Amortisation of intangible assets 22 9,613 17,287 Auditors' remunerations 10,000 10,000 1,659,542 1,531,911
12.1 Employee benefits expense Wages and salaries 808,594 803,839 Defined contribution pension costs 12.1.1 58,272 38,555 Defined benefit plan - Interest cost 32.1 40,125 25,318 90,281 28,369 892,184 870,763
12.1.1 The total contribution pension charged to profit or loss during the year is ₦92.8 million (2017: ₦69.4million).
12.2 Credit loss expenses
in thousands of Nigerian Naira Notes Stage 1 Stage 2 Stage 3 Total
2018
Cash in banks and short-term deposits 15.b 2,934 - - 2,934
Debt instruments at amortised cost: Treasury bills ( 4,170) - - ( 4,170) Bonds 41 - - 41 Loans and advances ( 1,348) 3,868 - 2,520 16.2b ( 5,477) 3,868 - ( 1,609)
(2,543) 3,868 - 1,325
Thereisnocreditlossexpensesrecognisedfor2017,thisisduetothefactthattheCompanyadoptedModifiedRetrospective ApproachoftheadoptionofIFRS9.TheimpactoftheIFRS9inrespectofexpectedcreditlossat1January2018is recognised in retained earnings. See the details in Note 5.
54 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
12.3 Other expenses
in thousands of Nigerian Naira Notes 2018 2017
Advertising 106,387 26,416 NAICOM Levy 61,247 59,984 Rent and rate 50,694 40,114 Forms and printing expenses 10,525 38,721 Bank charges 15,987 30,897 Professional fees 13,965 30,703 Fuel, electricity & energy 39,317 24,037 Insurance 31,808 19,010 Office building maintenance and security 23,941 19,622 Automobile expenses 18,576 17,499 Staff training & education 20,597 16,477 Transport and travelling expenses 24,007 14,676 Gifts 25,194 13,680 Data processing 18,279 12,986 Security Exchange Commission and Nigerian Stock Exchange expenses 3,499 10,200 Telephone expenses 10,730 8,022 Annual general meeting expenses 13,260 8,926 Equipment maintenance & repairs 5,252 6,287 Contribution to I.T.F levy 9,358 7,331 Contribution to NHF 2,101 - Office and stationery expenses 5,788 6,817 Hotel accommodation 4,849 3,947 Contribution to NSITF 4,449 3,768 Local government dues 2,249 1,837 Entertainment 3,372 2,783 Courier and postages expenses 3,667 2,667 Periodicals & books 2,720 1,978 Contribution & donation 2,386 1,850 Tax consultancy expenses 3,096 1,550 Club membership & subscriptions 4,973 1,107 Staff uniforms 645 - 542,918 433,892
55 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
13 Income tax expense
The major components of income tax expenses for the year ended 31 December 2018 are:
13.1 Current tax year charge
in thousands of Nigerian Naira Notes 2018 2017
Current year tax: Minimum tax - 37,114 Company income tax 45,820 - Capital gain tax - 5,684 Education tax 9,164 - Information technology levy 7,814 2,027 62,798 44,825
Deferred taxation: Origination of temporary differences 133,520 - 133,520 -
Total income tax expense 196,318 44,825
13.2 Reconciliation of tax charge
Profit before income tax 540,554 202,694
Tax at Nigerian's statutory income tax rate of 30% 162,166 60,808
Tax exempt income ( 665,011) ( 60,808) Information Technology 7,814 2,027 Non-deductable expenses 682,185 - Capital gain tax - 5,684 Education tax @2% of assessable profit 9,164 - Minimum tax - 37,114 196,318 44,825
56 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
14 Earnings per share
Basisearningspershareamountsiscalculatedbydividingthenetprofitfortheyearattributabletoordinaryshareholdersby the weighted average number of ordinary share outstanding at the reporting date.
The following reflects the income and share data used in the basic earnings per share computations:
in thousands of Nigerian Naira Notes 2018 2017
Net profit attributable to ordinary shareholders for basic earnings 344,236 157,869
Weighted average number of ordinary shares for basic earnings per share 8,340,824 8,340,824
Basic earnings per ordinary share (kobo) 4.13 1.89
Diluted earnings per ordinary share (kobo) 4.13 1.89
Therehavebeennoothertransactionsinvolvingordinaryshareorpotentialordinarysharebetweenthereportingdate and financial statements.
15 Cash and cash equivalents
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Cash in banks 2,798,018 1,634,675 Short-term deposits 2,455,327 1,765,616 a 5,253,345 3,400,291
Allowance for expected credit loss b (11,832) - 5,241,513 3,400,291 - - Short-termdepositsaremadeforvaryingperiodsofbetweenonedayandthreemonths,dependingontheimmediatecash requirementsoftheCompany.Allshort-termdepositsaresubjecttoanaveragevariableinterestrateof11%perannum (2017: 11%).
57 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
15 Cash and cash equivalents - Continued
15.1 Impairment allowance for current account with bank and short-term deposits measure at amortised cost
ThetablebelowshowsthecreditqualityandthemaximumexposuretocreditriskbasedontheCompany’sinternalcredit a rating system and year-end stage classification. The amounts presented are gross of impairment allowances.
in thousands of Nigerian Naira Notes Stage 1 Stage 2 Stage 3 Total
Performing High grade - - - - Standard grade 5,253,345 - - 5,253,345 Sub-standard grade - - - - Past due but not impaired - - - - Non-performing Individually impaired - - - - 5,253,345 - - 5,253,345
b An analysis of changes in the gross carrying amount and the corresponding ECL allowances is, as follows:
in thousands of Nigerian Naira Notes Stage 1 Stage 2 Stage 3 Total
Gross carrying amount as at 1 January 2018 3,400,291 - - 3,400,291
New assets originated or purchased 3,618,670 - - 3,618,670 Assets derecognised or repaid (1,765,616) - - (1,765,616) Amount written off - - - - At 31 December 2018 5,253,345 - - 5,253,345
in thousands of Nigerian Naira Notes Stage 1 Stage 2 Stage 3 Total
ECL allowances as at 1 January 2018 8,898 - - 8,898
New assets originated or purchased 11,832 - - 11,832 Assets derecognised or repaid ( 8,898) - - ( 8,898) Credit loss expenses 12.2 2,934 - - 2,934
At 31 December 2018 11,832 - - 11,832
Credit analysis as at 31 December 2017 Current account Short-term in thousands of Nigerian Naira with bank deposit Total
Performing High grade - - - Standard grade 1,634,675 1,765,616 3,400,291 Sub-standard grade - - - Past due but not impaired - - - Non-performing Individually impaired - - - 1,634,675 1,765,616 3,400,291
58 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
16 Investment securities
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Quoted equities at fair value through profit or loss - 165,188 Equity instruments at fair value through 173,300 - profit or loss Equity instrument at fair value through 16.1 135,999 - other comprehensive income Debt securities at amortised cost 16.2 190,172 - Available-for-sale financial assets - 609,378 Held-to-maturity securities instruments - 160,600 Loans and receivables at amortised cost - 40,256 499,471 975,422
16.1 Equity instrument at fair value through other comprehensive income
Pinewood Limited 8,000 - Waica Reinsurance Corp 53,462 - Citrans Global Limited 278 - Interconnect Limited 2,621 - OTC quoted equities 71,638 - 135,999 -
16.2 Debt securities at amortised cost Federal Government bonds 79,139 - State Government bonds 54,106 - Corporate bonds 35,959 - Mortgage loan 15,824 - Loans to corporate 27,736 - Gross amount a 212,764 -
Expected credit loss b (22,592) - 190,172 -
59 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
16 Investment securities - Continued
16.2 Impairment allowance for debt instruments at amortised cost
ThetablebelowshowsthecreditqualityandthemaximumexposuretocreditriskbasedontheCompany’sinternalcredit a rating system and year-end stage classification. The amounts presented are gross of impairment allowances.
in thousands of Nigerian Naira Notes Stage 1 Stage 2 Stage 3 Total
Performing High grade 169,204 - - 169,204 Standard grade 15,824 - - 15,824 Sub-standard grade - - - - Past due but not impaired - - - - Non-performing Individually impaired - 27,736 - 27,736 185,028 27,736 - 212,764
b An analysis of changes in the gross carrying amount and the corresponding ECL allowances is, as follows:
in thousands of Nigerian Naira Notes Stage 1 Stage 2 Stage 3 Total
Gross carrying amount as at 1 639,117 21,736 - 660,853 January 2018
New assets originated or purchased 60,903 6,000 - 66,903 Assets derecognised or repaid (514,992) - - ( 514,992) At 31 December 2018 185,028 27,736 - 212,764
in thousands of Nigerian Naira Notes Stage 1 Stage 2 Stage 3 Total
ECL allowances as at 1 January 2018 14,201 10,000 - 24,201
New assets originated or purchased - 3,868 - 3,868 Assets derecognised or repaid ( 5,477) - - ( 5,477) Credit loss expenses 12.2 ( 5,477) 3,868 - ( 1,609)
At 31 December 2018 8,724 13,868 - 22,592
Credit analysis as at 31 December 2017 Corporate Available-for- Total salefinancial in thousands of Nigerian Naira assets Bonds Mortgage loans loan
Performing High grade 547,287 160,600 - - 707,887 Standard grade - - 18,520 - 18,520 Sub-standard grade 112,391 - - - 112,391 Past due but not impaired - - - - - Non-performing - Individually impaired - - - 21,736 21,736 659,678 160,600 18,520 21,736 860,534
60 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
16 Investment securities - Continued
16.3 Movement in investment securities Fair value through Available- Held-to Loans and in thousands of Nigerian Naira profit or loss for-sale Maturity Receivables Total
At 1 January 2017 199,881 187,926 142,336 32,703 562,846
Purchases/interest 22,456 433,899 20,000 21,736 498,091 Fair value gain 40,549 - - - 40,549 Maturities/repayments - (21,380) (1,736) (14,183) (37,299) Disposals (97,698) - - - (97,698) Fair value gain recorded in - 8,933 - - 8,933 other comprehensive income At 31 December 2017 165,188 609,378 160,600 40,256 975,422
16.3 Movement in investment securities Equity at Equity at fair Debt fair value through other instrument through profit comprehensive at amortised in thousands of Nigerian Naira or loss income cost Total
At 1 January 2018 165,188 134,567 660,853 960,608
Purchases/interest 105,458 - 66,903 172,361 Disposals (111,012) (4,626) - (115,638) Maturities/repayments - - (514,992) (514,992) Fair value gain recognised in profit or loss 13,666 - - 13,666 Fair value gain recorded in other comprehensive income - 6,058 - 6,058 173,300 135,999 212,764 522,063
Expected credit losses - - (22,592) (22,592) 173,300 135,999 190,172 499,471
173,300 135,999 190,172 499,471
61 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
16.4 Determination of fair value and fair value hierarchy
TheCompanyusesthefollowinghierarchyfordetermininganddisclosingthefairvalueoffinancialinstrumentsbyvalue technique:
Level 1: Quoted (unadjusted) prices in active markets for identical assets Level2:Othertechniquesforwhichallinputswhichhaveasignificanteffectontherecordedfairvalueareobservable,either directly or indirectly, and Level3:Techniqueswhichuseinputswhichhaveasignificanteffectontherecordedfairvaluethatarenotbasedon observable market data. Carrying in thousands of Nigerian Naira amount Level 1 Level 2 Level 3 Total
31 December 2018 Equity instruments at fair value through 173,300 173,300 - - 173,300 profit or loss Equity instrument at fair value through 135,999 - 71,638 64,361 135,999 other comprehensive income Debt securities at amortised cost 190,172 - 209,189 - 209,189
Reconciliation of level 3 items At 1 January 2018 129,941 Gain recognised through other comprehensive income 6,058 At 31 December 2018 135,999
31 December 2017 Available for sale: Treasury bill 547,287 - 547,287 - 547,287 Held-to-maturity: debt securities 160,600 - 156,659 - 156,659 Fair value through profit or loss 165,188 165,188 - - 165,188
Duringtheyearended31December2018andcomparativeyear31December2017,therewerenotransfersbetweenlevel1 and level 2 and in and out of level 1 and 3.
62 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
16 Investment securities - Continued
16.4 Determination of fair value and fair value hierarchy
Level 3 fair value measurement
a Unobservable inputs used in measure fair value
Thetablebelowsetsoutinformationaboutsignificantunobservableinputsusedat31December2018and31December 2017 in measuring financial instruments categorized as level 3 in the fair value hierarchy
Significant Type of instrument Fair value Valuation unobservable Range of estimates technique input ₦'000
Unquoted equity investment 64,361 Equity DCF -Discount rate Risk premium of 11.5-12.5% model (2017: 11.5 - 12.5%) above risk-free interest rate of 12% (2017: 12%)
-Estimate cashflow 5-years Compound Annual Growth Rate (CAGR) of cashflow of 5% (2017: 5%).
b The effect of unobservable inputs on fair value measurements AlthoughtheCompanybelievesthatitsestimateoffairvalueareappropriate,theuseofdifferentmethodologiesor assumptionscouldleadtodifferentmeasurementsoffairvalue.ForfairvaluemeasurementinLevel3,changingoneormore of the assumptions would have the following effects.
Effect on OCI 53,462,032 53,462,032 31 December 31 December in thousands of Nigerian Naira 2018 2017
Disount rate + 5% ( 696) (696) - 5% 900 900
Compund Annual Growth Rate + 5% 2,592 2,592 - 5% (2,592) ( 2,592)
ThefairvalueoftheunquotedequityholdinginWAICAReisdeterminedusingdividenddiscountedcashflowmodel.Inputs intothemodelincludedestimatedfuturedividendcashflowstoequity,valuationhorizonandCapitalAssetsPricingModel (CAPM) discount rate (Risk free rate plus risk premium).
63 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
16.4 Determination of fair value and fair value hierarchy
c Fair valuation methods and assumptions
Fair value of financial assets and liabilities Belowarethemethodologiesandassumptionsusedtodeterminefairvaluesforthosefinancialinstrumentsinthefinancial statements:
Assets for which fair value approximates carrying value Forfinancialassetsandfinancialliabilitiesthathaveashort-termmaturity(lessthanthreemonths),demanddepositsand savingsaccountswithoutaspecifiedmaturity,thecarryingamountsapproximatetotheirfairvalue.Thecarryingamountsof loans and receivables as disclosed above approximate fair value at the reporting date.
Equity instruments at fair value through profit or loss - Quoted Thefairvaluesofthequotedequityinstrumentsarederivedfromquotedmarketpricesinactivemarket,theNigerianStock Exchange (NSE).
Equity instruments at fair value through OCI - Unquoted The fair values of the non-listed equity investments have been estimated using a DCF model. The valuation requires managementtomakecertainassumptionsaboutthemodelinputs,includingforecastcashflows,thediscountrate.The probabilitiesofthevariousestimateswithintherangecanbereasonablyassessedandareusedinmanagement’sestimateof fair value for these non-listed equity investments.
Debt instrument at amortised cost - Federal, State Government and Corporate bonds Certainunquotedinvestmentsforwhichfairvaluescouldnotbereliablyestimatedhavebeencarriedatcostlessimpairment. Therearenoactivemarketsforthesefinancialinstruments,fairvalueinformationarethereforenotavailable,thismakesit impracticablefortheCompanytofairvaluetheseinvestments.Theyhavethereforebeendisclosedatcostlessimpairment. Thecarryingamountistheexpectedrecoverableamountsontheseinvestments.Thisinvestmentcanbedisposedthrough private placement.
Debt instrument at amortised cost - Loans and advances ThefairvalueofloansandadvanceswasestimatedusingthemaximumlendingratequotedonCentralBankofNigeria website as at year end.
64 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
17 Trade receivables
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Insurance receivables 380,632 329,648
The carrying amounts disclosed above approximate fair value at the reporting date.
17.1 Analysis of insurance receivables by counter party
31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Gross Due from insurance brokers 380,632 329,658 380,632 329,658
18 Reinsurance assets
Reinsurance share of outstanding claims 369,814 755,921 Prepaid reinsurance 18.1 1,502,530 1,744,840 1,872,344 2,500,761
Includedaspartoftheprepaidreinsuranceassetin 2017of ₦606.8millionisanadvancereinsurancepaymentfor2018 reinsurance policies that are yet to commence.
At31December2018,theCompanyconductedanimpairmentreviewofthereinsuranceassetsbutnoimpairmentloss resulted from this exercise. The carrying amounts disclosed above approximate the fair value at the reporting date.
18.1 The movement in prepaid reinsurance
31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
At 1 January 1,744,840 1,448,669 Additions during the year 5,034,390 4,744,617 Recognised in profit or loss 6 (5,276,700) (4,448,446) At 31 December 1,502,530 1,744,840
19 Other receivables and prepayments
Contribution to Nigerian Insurance Association risk pool 50,300 50,300 Staff debtors 7,936 6,510 Prepayments 36,348 43,645 94,584 100,455
Thecarryingamountsdisclosedaboveapproximatethefairvalueatthereportingdate.Allotherreceivableamountsare collectible within one year and the prepayment utilisable within one year.
65 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
20 Investment in associate
31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Investment in STI Leasing 74,200 74,200 Share of retained earning/(accumulated 20.1 7,234 ( 3,022) loss) in STI Leasing 81,434 71,178
20.1 Analysis of share of associate loss
Opening balance (3,022) (7,343) Share of profit during the year 10,256 4,321 7,234 (3,022)
The Company has 43% interest in STI Leasing Limited, which is involved in Leasing services to private and public sector contributors.STILeasingLimitedwasincorporatedasaLimitedLiabilityCompanyundertheCompaniesandAlliedMatters Act,CAPC20LawsoftheFederation2004andlicensedasaLeasingCompany.STILeasingLimitedisdomiciledinNigeria anditsregisteredofficeisat22KeffiStreetIkoyiLagos.SovereignTrustInsurancePlcdoesnothavecontrolbutonlyhas significant influence as it does not control the Board of Directors.
21 Investment properties 31 December 31 December in thousands of Nigerian Naira 2018 2017
At the beginning of the year 1,161,581 1,181,454 Additions - 5,301 Disposal (72,000) (60,000) Fair value gain 39,057 34,826 At the end of the year 1,128,638 1,161,581
Investmentpropertiesarestatedatfairvalue,whichhasbeendeterminedbasedonvaluationsperformedbyGerryIputu& Partners.(FRC/2013/NIESV/0000000402),J.AjayiPatunola&Co(FRC/2013/000000000679),RogbaOrimolade&Co. (FRC/2012/NIESV/0000000017), Amos Jolaoye & Co., Sumbo Iluyemi & Co. and Barin Epega & Company (FRC/2012/NIESV/00000000597)accreditedindependentvaluersasat31December2018.Thevaluersarespecialistsin valuingthesetypesofinvestmentproperties.Thedeterminationoffairvalueoftheinvestmentpropertywassupportedby marketevidence.Themodalitiesandprocessofvaluationutilizedextensiveanalysisofmarketdataandothersectorsspecific percularities corroborated with available data derived from previous experiences.
ValuationsareperformedonanannualbasisandthefairvaluegainsandlosseswererecordedwithintheStatementofprofit or loss.
Therearenorestrictionsontherealisabilityofinvestmentpropertyorremittanceofincomeandproceedsofdisposal.The Companyhasnocontractualobligationstopurchase,constructordevelopinvestmentpropertyorforrepairsor enhancement.
66 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
21 Investment properties - Continued 31 December 31 December in thousands of Nigerian Naira 2018 2017
Rental income derived from investment properties 5,803 567
Investment properties related expenses - - Net profit arising from investment properties carried at fair value 5,803 567
The fair value disclosure for investment properties is as follow
Fair value measurement using Quoted prices in Significant Significant active observable unobservable market inputs inputs Level 1 Level 2 Level 3 Total
Date of valuation: 31 December 2018
Investment properties - - 1,128,638 1,128,638
31 December 2017
Investment properties - - 1,161,581 1,161,581
Duringthereportingyearended31December2018,therewerenotransfersbetweenlevel1andlevel2andinandoutof level 3.
Description of valuation techniques used and key inputs to valuation on investment properties: Thevaluationofthepropertiesisbasedonthepriceforwhichcomparablelandandpropertiesarebeingexchangedand/or are being marketed for sale. Therefore, the market-approach Method of Valuation was used
Thismeansthatvaluationsperformedbythevaluerarebasedonactivemarketprices,significantlyadjustedfordifferencesin the nature, location or condition of the specific property.
67 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
21 Investment properties - Continued
The items of investment properties are as shown below: 31 December 31 December in thousands of Nigerian Naira 2018 2017
May fair gardens 30,000 30,000 Ibeshe properties 72,000 63,147 Agbara Estate Properties 203,707 203,707 Sunrise Estate Ipaja 44,000 37,388 Solteby Apartment 41,000 36,572 Investment Properties along Epie Swali Road Yenagoa 78,231 70,317 Investment Properties at Alagbaka Junction Akure 399,700 398,450 Investment Properties along Awolowo Road Ikoyi 260,000 250,000 Emerald Court - 72,000 1,128,638 1,089,581
The movement in investment properties is shown as below:
31 December 2018 31 Dec Fair value 31 Dec in thousands of Nigerian Naira 2017 Additions Disposal gain 2018
May fair gardens 30,000 - - - 30,000 Ibeshe properties 63,147 - - 8,853 72,000 Agbara Estate Properties 203,707 - - - 203,707 Sunrise Estate Ipaja 37,388 - - 6,612 44,000 Solteby Apartment 36,572 - - 4,428 41,000 Investment Properties along 70,317 - - 7,914 78,231 Epie Swali Road Yenagoa Emerald Court 72,000 - (72,000) - - Investment Properties at 398,450 - - 1,250 399,700 Alagbaka Junction Akure Investment Properties along 250,000 - - 10,000 260,000 Awolowo Road Ikoyi 1,161,581 - (72,000) 39,057 1,128,638
68 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
21 Investment properties - Continued
31 December 2017 31 Dec Fair value 31 Dec in thousands of Nigerian Naira 2016 Additions Disposal gain/(loss) 2017
May fair gardens 32,000 - - (2,000) 30,000 Ibeshe properties 50,000 1,300 - 11,847 63,147 Agbara Estate Properties 203,706 - - - 203,706 Sunrise Estate Ipaja 37,000 - - 388 37,388 Solteby Apartment 32,433 - - 4,139 36,572 Investment Properties along 60,670 - - 9,648 70,318 Epie Swali Road Yenagoa Emerald Court 125,000 - (60,000) 7,000 72,000 Investment Properties at 390,645 - - 7,805 398,450 Alagbaka Junction Akure Investment Properties along 250,000 4,001 - (4,001) 250,000 Awolowo Road Ikoyi 1,181,454 5,301 (60,000) 34,826 1,161,581
22 Intangible assets 31 December 31 December in thousands of Nigerian Naira 2018 2017
Computer software
Cost: At the beginning of the year 66,404 54,404 Additions 6,347 12,000 At the end of the year 72,751 66,404
Accumulated amortization: At the beginning of the year 50,899 33,612 Amortisation charge 9,613 17,287 At the end of the year 60,512 50,899
Carrying amount 12,239 15,505
69 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
23 Deferred acquisition costs
This represents commission paid to brokers on unearned premium relating to the unexpired tenure of risk.
General Engi- Marine & Oil and in thousands of Nigerian Naira Notes Fire Motor accident neering aviation gas Total
At 1 January 2017 61,708 29 ,338 72,698 27,410 44,057 261,083 496,295
Commission paid 302 ,010 158 ,606 148 ,329 102 ,886 171 ,052 265 ,629 1,148,513
Amortisation 9 (261,948) (140 ,568) (154,433) (87,752) (180 ,087) (380,953) (1,205,741) At 31 December 2017 101,770 47 ,376 66,594 42,545 35,023 145,760 439,068
Commission paid 382 ,319 168 ,745 208 ,736 213 ,159 111 ,046 124 ,020 1,208,025
Amortisation 9 (360,885) (210 ,577) (244,867) (209,525) (128 ,980) (265,366) (1,420,200) At 31 December 2018 123,204 5 ,544 30 ,463 46 ,179 17 ,089 4,414 226,893
Current 123,204 5,544 30,463 46,179 17,089 4 ,414 226,893
Non-current ------
70 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
24 Property, plant and equipment
Leasehold Office Furniture & Plant & Motor Work in Computer & in thousands of Nigerian Naira Land Building improvements equipment fittings machinery vehicles progress equipment Total
Cost/Revaluation At 1 January 2017 67 ,302 1 ,082,094 135 ,564 82,233 110,941 75,424 874,624 255,859 202,189 2 ,886,230 Additions - 3,450 - 2 ,135 673 5 ,097 150,980 - 7 ,568 169,903 Disposal (67,302) ------(255 ,859) - (323,161) Revaluation adjustment - 71 ,164 ------71 ,164 At 31 December 2017 - 1 ,156,708 135 ,564 84,368 111,614 80,521 1,025,604 - 209,757 2 ,804,136 Additions - - 280 4 ,457 3,586 540 225,075 - 10,570 244,508 Disposal ------(53,395) - - (53,395) At 31 December 2018 - 1 ,156,708 135 ,844 88,825 115,199 81,061 1,197,284 - 220,328 2 ,995,249
Accummulated depreciation At 1 January 2017 - 53 ,998 70,577 76,208 97 ,234 49,426 723,747 - 194,567 1 ,265,758 Charge - 21 ,711 13,556 3 ,016 4,722 6 ,527 93,246 - 8 ,738 151,516 At 31 December 2017 - 75 ,709 84,134 79,224 101,956 55,953 816,993 - 203,305 1 ,417,273 Charge - 23 ,134 13,584 2 ,669 5,067 6 ,564 104,953 - 6 ,720 162,691 Disposal ------(53,395) - - (53,395) At 31 December 2018 - 98 ,843 97,718 81,893 107,022 62,517 868,551 - 210,025 1 ,526,570
Carrying amount
At 31 December 2018 - 1,057,865 38,126 6,932 8,177 18 ,544 328,733 - 10 ,303 1,468,679
At 31 December 2017 - 1,080,999 51,430 5,144 9,658 24 ,568 208,611 - 6,453 1,386,862
i No leased assets are included in the above property, plant and equipments (2017: Nil). ii There were no capital commitment contracted or authorised as at the reporting date (2017: Nil). iii There were not capitalised borrowing cost related to the acquisition of property, plant and equipment during the year (2017: Nil). iv None of the assets are pledged during the year (2017: Nil).
71 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
24 Property, plant and equipment - Continued
TheBuildingat17,AdemolaAdetokunbo,VictoriaIsland,Lagos(withinitialcostof ₦600million)wasvaluedonthebasisofanopenmarketvaluationforexistinguseasof31December2017for ₦850,000,000byAmosJolaoye&Co.CharteredSurveyors(FRC/2012/NIESV/00000000597),ValuersandRealEstateConsultants.Also,theCompanybuildingat1707AOlugboseClose,Victoria Island,Lagoswith(initialcostof ₦224million)wasvaluedonthebasisofanopenmarketvaluationforexistinguseasat31December2017for ₦231,000,000byAmosJolaoye&Co.Chartered Surveyors, Valuers and Real Estate Consultants.
This means that valuations performed by the valuer are based on active market prices, significantly adjusted for differences in the nature, location or condition of the specific property.
The fair value hierarchy for the fair valuation of the building is in level 3.
If building were measured using the cost model, the carrying amounts would be as follows:
31 December 31 December 31 December in thousands of Nigerian Naira 2018 2017 2016
Cost 906 ,296 906,296 906,296
Accumulated depreciation (101,943) (83,817) (65,691) 804,353 822,479 840,605
72 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
25 Taxation
25.1 Current income tax payable As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017 At the beginning of the year 71,739 46,158 Amounts recorded in the profit or loss 13.1 62,798 44,825 Payments made during the year ( 26,086) ( 19,244) 108 ,451 71,739
25.2 Deferred tax (liabilities)/assets Deferred tax asset (8,922) 121 ,904
Movement in deferred tax (liabilities)/assets At the beginning of the year 121,904 151,764 IFRS 9 ECL deferred tax impact 8,447 - Amounts recorded in OCI in respect of revaluation surplus - ( 21,349) Amounts recorded in OCI in respect of gain on gratuity (5,753) (8,511) Amounts recorded in the profit or loss 13.1 (133,520) - (8,922) 121 ,904
Deferred tax (liabilities)/assets is attributable to the following:
Property, plant and equipment (53,121) 79,552 Investment property (8,366) (4,460) Defined benefit obligation 52,565 46,812 (8,922) 121 ,904
26 Statutory deposit Thestatutorydepositof ₦315,000,000representstheamountdepositedwiththeCentralBankofNigeriaasat 31December2018(31December2017: ₦315,000,000)inaccordancewithSection10(3)ofInsuranceAct 2003. The deposit has been tested for adequacy as at 31 December 2018 and found to be adequate. Interestincomeearnedatannualaveragerateof 15.32%perannum(2017:15.32%)andthisisincludedwithin investment income. However, access to the deposit is restricted.
73 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
27 Insurance contract liabilities
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Claims reported by policyholders 481 ,362 858 ,832
Claims incurred but not reported (IBNR) 453 ,593 422 ,805 Outstanding claims provisions 27.1 934 ,955 1,281,637
Unearned premiums 27.3 2,153,883 1,978,882 3,088,838 3,260,519
Current 3,088,838 3,260,519
27.1 Outstanding claims provisions
At 1 January 1,281,637 1,072,253 Claims incurred in the current year 8 3,896,959 2,200,145 Claims paid during the year 8 (4,243,641) (1,990,761) 934 ,955 1,281,637
The aging analysis for claims reported and losses adjusted
Days 0 - 90 90,300 105,730 91 - 180 84,015 64,678 181 - 270 32,001 51,248 271 - 360 33,560 54,450 361 and above 241,486 582,726 Incurred but not reported (IBNR) 453,593 422,805 934 ,955 1,281,637
Outstandingclaimsariseasaresultofincompletedocumentationbytheclaimants,claimsunderinvestigationas well as claims that are being disputed.
Analysis of reported claims per class of insurance
Motor 73,592 108 ,093 Fire and property 80,567 170 ,649 Marine and Aviation 79,173 56,551 General accidents 100 ,473 108 ,093 C.A.R. Engineering 65,607 80,204 Energy 81,950 335 ,242 481 ,362 858 ,832
74 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
27 Insurance contract liabilities - Continued
27.2 Claims incurred but not reported
This represents additional provision as a result of actuarial valuation as at year end.
27.3 The movement in unearned premium during the year
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
At 1 January 1,978,882 1,766,347 Premiums written in the year 6 10,513,078 8,513,503 Premiums earned during the year 6 (10,338,077) (8,300,968) 2,153,883 1,978,882
28 Borrowing
At 1 January 861,919 750,456 Interest 88,487 78,356 Foreign exchange difference 22,954 33,107 973 ,360 861 ,919
This represents zero coupon JPY846,000,000 direct, unconditional, unsubordinated and unsecured European BondwithoptionsissuedtoDaewooSecuritiesEuropeLimitedin2008.TheunderlyingBondhadaputperiodof 30monthswithayieldtoputof4.25%perannumwhilethetenoroftheconvertibleoptionisvaliduptoyear 2024.ThepurposeforwhichtheBondwasissuedrelatestoExpansionofBranchNetwork,Upgradeof InformationandCommunicationTechnologyandWorkingCapital.However,theCompanyhassecuredthe consentandagreementofDaewooSecurities(Europe)Limitedtorestructurethebondforaperiodof5years commencingfromyear2013to2017underanewinterestrate(10%)arrangementwhichincorporateany previous default interest.
The Company is currently engaging Daewoo Securities to restructure the balance for another five year.
75 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
29 Bank overdrafts
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Bank overdrafts 327 ,941 78,897
These represent the outstanding balance on bank account which overdraft facilities were agreed on in the prior year.ThesefacilitieswereobtainedtoaugmentworkingcapitalfortheCompany.Theyareatinterestrates rangingbetween17%to21%perannum.Thecarryingvalueofbankoverdraftatyearendreasonably approximates its fair value.
30 Trade payables
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Due to insurance companies 4,271 154 ,494 Due to reinsurance companies 754 ,810 555 ,839 759 ,081 710 ,333
Current 759,081 710,333
Thisrepresentstheamountpayabletoinsuranceandreinsurancecompaniesasatyearend.Thecarrying amounts of trade payable as disclosed above approximate their fair value at the reporting date.
31 Other payables and accruals
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Lease creditors 25,937 55,690 Sundry creditors 51,957 69,931 Unclaimed dividends 51,016 54,511 128 ,910 180 ,132
Current 128,910 180,132
Included in sundry creditors above are accrued expenses, pension deductions and other levies.
Thecarryingamountsdisclosedaboveapproximatethefairvalueatthereportingdate.Allotherpayablearedue within one year.
76 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
32 Retirement benefit obligation
Defined contribution plan ThedefinedcontributionplanisapensionplanunderwhichtheCompanypaysfixedcontributionsinlinewiththe PensionReformAct2014.Thereisnolegalorconstructiveobligationtopayfurthercontributions.Theassetsof the plan are held separately from those of the Company.
Defined benefit plan Adefinedbenefitplanisagratuityplanthatdefinesanamountofgratuitybenefitthatanemployeeisentitledto receiveonretirement,dependentononeormorefactorssuchasage,yearsofserviceandsalary.Afullactuarial valuation by a qualified independent actuary is carried out every year.
Theplanliabilityismeasuredonanactuarialbasisusingtheprojectedunitcreditmethod,adjustedfor unrecognisedactuarialgainsandlosses.Thedefinedbenefitplanliabilityisdiscountedusingratesequivalentto themarketyieldsatthereportingdateofhigh–qualitycorporate/governmentbondsthataredenominatedinthe currencyinwhichbenefitswillbepaid,andthathaveamaturityapproximatingtothetermsoftherelated pension liability.
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Retirement benefit obligation 105 ,569 182 ,232
32.1 Net benefit expense (recognised in statement of profit or loss)
Interest cost 25,318 28,369
32.2 Movement of gratuity
At 1 January 182,232 184,406 Interest cost 32.1 25,318 28,369 Actuarial gain ( 19,175) ( 28,370) Benefits paid ( 82,806) (2,173) 105 ,569 182 ,232
TheCompany'sgratuityplanisonawindingdownbasis.TheCompanystoppedtheschemein2013andonly staff who are qualified at the end of 2013 are qualified to benefit from the scheme.
The principal assumptions used in determining defined benefit obligations for the Company’s plans are shown below: 2018 2017 % % Discount rate 15.50 14.25 Rate of salary increases na na
77 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
32 Retirement benefit obligation - Continued
Mortality in Service
TheratesofmortalityassumedforemployeesaretheratespublishedintheA67/70UltimateTables,published jointly by the Institute and Faculty of Actuaries in the UK.
Sample age Number of deaths in year out of 10,000 lives
25 7 30 7 35 9 40 14 45 26
Withdrawal from Service Age Band Rate Less than or equal to 300%
31 – 39 6% 40 – 44 31% 45 – 50 41% 51 – 55 19% 56 – 59 3%
The following payments are expected contributions to the defined benefit plan in the future:
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Between 10 and 15 years - 28 ,919 Between 15 and 20 years 100 ,512 151 ,634 Between 20 and 25 years 104 ,991 174 ,184 205 ,503 354 ,736
33 Equity
33.1 Authorised and Issued and paid-up share capital
Authorised share capital 15billion (2017: 10.5billion) units of ordinary share of ₦0.50k each As at 1 January 5,250,000 5,250,000 Increase during the year 2,250,000 - As at 31 December 7,500,000 5,250,000
Ordinary shares issued and fully paid
8,340,823,296 Ordinary share of ₦0.50k each 4,170,412 4,170,412
33.2 Share premium
As at year end 116 ,843 116 ,843
78 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
33.3 Contingency reserve
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
At 1 January 2,332,596 2,077,191 Transfer from accumulated losses 315,392 255,405 2,647,988 2,332,596
Contingencyreserveinrespectofnon-lifebusinessisthehigherof20%ofnetprofitand3%oftotalpremiumas specified in Section 21 (2) of the Insurance Act 2003.
33.4 Revaluation reserve This is revaluation surplus in respect of building in line with the Company's accounting policy.
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Opening balance 225,103 175,288 Additional revaluation in the year 24 - 71,164 Effect of tax at 30% 25.2 - (21,349) 225 ,103 225 ,103
33.5 Fair value reserve TheFairvaluereserverepresentsthenetcumulativechangeinthefairvalueofequityinstrumentmeasuredat fair value through other comprehensive income until the investment is derecognised or impaired.
33.6 Accumulated losses Accumulatedlossesisthecarriedforwardrecognisedincomenetofexpensespluscurrentperiodprofitorloss attributable to shareholders.
34 Cash and cash equivalents for the purpose of statements of cash flows consist of the following:
As at 31 December 31 December in thousands of Nigerian Naira Notes 2018 2017
Cash and cash equivalents per statement of financial position 15 5,241,513 3,400,291 Bank overdrafts 29 (327,941) (78,897) 4,913,572 3,321,394
79 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
35 Reconciliation of profit before tax to cash flows provided by operating activities:
in thousands of Nigerian Naira Notes 2018 2017
Profit before income tax 540,554 202,694
Adjustments for non-cash items: Fair value gain on quoted equities 16.3 (13,666) (40,549) Interest on borrowing cost 28 88,487 78,356 Interest income on loans (6,000) (21,736) Loss on disposal of investment properties 7,000 - Profit from sale of property and equipment 11 (1,000) (56,838) Depreciation of property, plant and equipment 24 162,691 151,516 Amortisation of intangible assets 22 9,613 17,287 Fair value gain on investment properties 21 (39,057) (34,826) Share of profit in associate 20.1 (10,256) (4,321) Interest cost on retirement benefit 32.2 25,318 28,369 Credit loss expenses 12.2 1,325 - Foreign exchange gain on cash and cash equivalents - (122,557) Unrealised exchange loss foreign borrowing 28 22,954 33,107 Cash flow from operating profit before changes in 787,963 230,502 operating assets and liabilities
Changes in operating assets and liabilities Increase in trade receivables (50,984) (21,220) Decrease/(increase) in re-insurance assets 655,193 (767,446) Decrease in deferred acquisition costs 212,175 57,227 Decrease/(increase) in other receivables and prepayments 5,871 (61,449) Increase in trade payables 15,649 484,380 (Decrease)/increase in other payables and accruals (51,222) 58,214 (Decrease)/increase in outstanding claims (346,682) 209,384 Increase in unearned premium 200,695 212,535 Gratuity paid (82,806) (2,173) Income tax paid (26,086) (19,244) Net cash flows from operating activities 1,319,766 380,710
80 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
36 Related party disclosures
36.1 Transactions with related parties The company did not have any related parties transactions in the year.
36.2 Compensation of key management personnel: KeymanagementpersonnelisdefinedasmembersoftheBoardofDirectorsoftheCompany,includingtheir closemembersoffamilyandanyentityoverwhichtheyexercisecontrol.Closemembersoffamilyarethose familymemberswhomaybeexpectedtoinfluence,orbeinfluencedbythatindividualinthedealingswith Company.
in thousands of Nigerian Naira Notes 2018 2017
Short term employee benefits 84,552 73,816 Post employment pension benefits 4 ,268 1 ,853 Total compensation of key management personnel 88,820 75,669
37 Risk management framework
a. Governance framework TheprimaryobjectiveoftheCompany’sriskandfinancialmanagementframeworkistoprotecttheCompany’s shareholdersfromeventsthathinderthesustainableachievementoffinancialperformanceobjectives,including failingtoexploitopportunities.Keymanagementrecognisesthecriticalimportanceofhavingefficientand effective risk management systems in place.
TheCompanyhasestablishedariskmanagementfunctionwithcleartermsofreferencefromtheboardof directors,itscommitteesandtheassociatedexecutivemanagementcommittees.Thisissupplementedwitha clearorganisationalstructurewithdocumenteddelegatedauthoritiesandresponsibilitiesfromtheboardof directorstoexecutivemanagementcommitteesandseniormanagers.Lastly,aCompanypolicyframeworkwhich setsouttheriskprofilesfortheCompany,riskmanagement,controlandbusinessconductstandardsforthe Company’soperationshasbeenputinplace.Eachpolicyhasamemberofseniormanagementchargedwith overseeing compliance with the policy throughout the Company.
TheboardofdirectorsapprovestheCompanyriskmanagementpoliciesandmeetsregularlytoapproveany commercial,regulatoryandorganisationalrequirementsofsuchpolicies.ThesepoliciesdefinetheCompany’s identificationofriskanditsinterpretation,limitstructuretoensuretheappropriatequalityanddiversificationof assets, align underwriting and reinsurance strategy to the corporate goals, and specify reporting requirements.
81 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
37 Risk management framework - Continued b Capital management objectives, policies and approach
The Company has established the following capital management objectives, policies and approach to managing the
1 TomaintaintherequiredlevelofstabilityoftheCompanytherebyprovidingadegreeof securityto policyholders; 2 Toallocatecapitalefficientlyandsupportthedevelopmentofbusinessbyensuringthatreturnsoncapital employed meet the requirements of its capital providers and of its shareholders; 3 To retain financial flexibility by maintaining strong liquidity and access to a range of capital markets; 4 To align the profile of assets and liabilities taking account of risks inherent in the business; 5 Tomaintainfinancialstrengthtosupportnewbusinessgrowthandtosatisfytherequirementsofthe policyholders, regulators and stakeholders; 6 Tomaintainstrongcreditratingsandhealthycapitalratiosinordertosupportitsbusinessobjectivesand maximise shareholders value.
Inreportingfinancialstrength,capitalandsolvencyaremeasuredusingtherulesprescribedbytheNational InsuranceCommission.Theseregulatorycapitaltestsarebaseduponrequiredlevelsofsolvency,capitalanda series of prudent assumptions in respect of the type of business written.
TheCompany'scapitalmanagementpolicyforitsinsurancebusinessistoholdsufficientcapitaltocoverthe statutoryrequirementsbasedontheNAICOMdirectives,includinganyadditionalamountsrequiredbythe regulator.
TheCompanyseekstooptimisethestructureandsourcesofcapitaltoensurethatitconsistentlymaximises returns to the shareholders and policyholders.
TheCompanyhashadnosignificantchangesinitspoliciesandprocessestoitscapitalstructureduringthepast year from previous years.
in thousands of Nigerian Naira 2018 2017
Available capital resources as at 31 December
Total shareholders' funds per financial statements 5 ,820,355 5 ,471,904 Regulatory adjustments (1,299,602) (231,354)
Available capital resources 4 ,520,753 5 ,240,550
Minumum capital based required by regulator 3,000,000 3,000,000 Excess in solvency margin 1,520,753 2,240,550
Theregulatoryadjustmentsrepresentassetsinadmissibleforregulatoryreportingpurpose.However,current year available capital resources are subject to the Regulators commission review and approval.
82 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
37 Risk management framework - Continued
The Solvency Margin for the Company as at 31 December 2018 is as follows:
in thousands of Nigerian Naira Admissible Inadmissible Total 2017
Admissible assets Cash and cash equivalents 5,241,513 - 5,241,513 3,400,291 Available for sale - - 609,378 Fair value through profit and loss 173,300 - 173,300 165,188 Held to maturity - - 160,600 Loan and receivables - - 40,256 Equity instrument at fair value through other comprehensive income 135,999 - 135,999 - Debt securities at amortised cost 190,172 - 190,172 - Trade receivables 380,632 - 380,632 329,648 Reinsurance assets 1,872,344 - 1,872,344 2,500,761 Deferred acquisition cost 226,893 - 226,893 439,068 Other receivables and prepayments 7,936 86,648 94 ,584 6,510 Investments in associates 81 ,434 - 81 ,434 71,178 Investment properties 1,000,000 128 ,638 1,128,638 1,161,581 Property,plant and equipment 387,680 1,080,999 1,468,679 1,386,862 Statutory deposits 315,000 - 315,000 315,000 10,012,903 1,296,285 11,309,188 10,586,321
Admissible liabilities Insurance liabilities 3,088,838 - 3,088,838 3,260,519 Borrowing 973,360 - 973,360 861,919 Bank overdraft 327,941 - 327,941 78,897 Trade payables 759,081 - 759,081 710,333 Other payables and accruals 128,910 - 128,910 180,132 Retirement benefit obligations 105,569 - 105,569 182,232 Current income tax payable 108,451 - 108,451 71,739 Deferred tax liabilities - 8,922 8,922 - 5,492,150 5,501,072 5,345,771
Solvency margin 4,520,753 5,240,550 The higher of 15% of Net premium income and 3,000,000 3,000,000 Shareholders funds
Solvency ratio (%) 1.51 1.75 c Regulatory framework Regulatorsareprimarilyinterestedinprotectingtherightsofpolicyholdersandmonitorthemcloselytoensure thattheCompanyissatisfactorilymanagingaffairsfortheirbenefit.Atthesametime,regulatorsarealso interestedinensuringthattheCompanymaintainsanappropriatesolvencypositiontomeetunforeseenliabilities arising from economic shocks or natural disasters.
83 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
37 Risk management framework - Continued d Asset liability management (ALM) framework TheprincipaltechniqueoftheCompany’sALMistomatchassetstotheliabilitiesarisingfrominsurance contractsbyreferencetothetypeofbenefitspayabletocontractholders.Foreachcategoryofliabilities,a separate portfolio of assets is maintained. The Company's ALM is: Anintegralpartoftheinsuranceriskmanagementpolicy,toensureineachperiodsufficientcashflowsis available to meet liabilities arising from insurance contracts. 38 Insurance and financial risks a Insurance risk TheprincipalrisktheCompanyfacesunderinsurancecontractsisthattheactualclaimsandbenefitpaymentsor thetimingthereof,differfromexpectations.Thisisinfluencedbythefrequencyofclaims,severityofclaims, actualbenefitspaidandsubsequentdevelopmentoflong–termclaims.Therefore,theobjectiveoftheCompanyis to ensure that sufficient reserves are available to cover these liabilities. Theriskexposureismitigatedbydiversificationacrossalargeportfolioofinsurancecontractsandgeographical areas.Thevariabilityofrisksisalsoimprovedbycarefulselectionandimplementationofunderwritingstrategy guidelines, as well as the use of reinsurance arrangements.
TheCompanypurchasesreinsuranceaspartofitsrisksmitigationprogramme.Reinsurancecededisplacedon bothaproportionalandnon–proportionalbasis.Themajorityofproportionalreinsuranceisquota–share reinsurancewhichistakenouttoreducetheoverallexposureoftheCompanytocertainclassesofbusiness. Non–proportionalreinsuranceisprimarilyexcess–of–lossreinsurancedesignedtomitigatetheCompany’snet exposuretocatastrophelosses.Retentionlimitsfortheexcess–of–lossreinsurancevarybyproductlineand territory. Amountsrecoverablefromreinsurersareestimatedinamannerconsistentwiththeoutstandingclaimsprovision andareinaccordancewiththereinsurancecontracts.AlthoughtheCompanyhasreinsurancearrangements,itis notrelievedofitsdirectobligationstoitspolicyholdersandthusacreditexposureexistswithrespecttoceded insurance,totheextentthatanyreinsurerisunabletomeetitsobligationsassumedundersuchreinsurance agreements.TheCompany’splacementofreinsuranceisdiversifiedsuchthatitisneitherdependentonasingle reinsurernoraretheoperationsoftheCompanysubstantiallydependentuponanysinglereinsurancecontract. There is no single counterparty exposure that exceeds 20% of total reinsurance assets at the reporting date.
TheCompanyprincipallyissuesthefollowingtypesofgeneralinsurancecontracts:fire,motor,generalaccident, engineering,marineandaviationandoilandgas.Risksundernon–lifeinsurancepoliciesusuallycovertwelve monthsduration.Forgeneralinsurancecontracts,themostsignificantrisksarisefromclimatechanges,natural disasters and terrorist activities. For longer tail claims that take some years to settle, there is also inflation risk.
TheCompanyhasalsolimiteditsexposurebyimposingmaximumclaimamountsoncertaincontractsaswellas theuseofreinsurancearrangementsinordertolimitexposuretocatastrophicevents(e.g.,hurricanes, earthquakes and flood damage).
84 SOVEREIGN TRUST INSURANCE PLC NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance risk - Continued Theaboveriskexposureismitigatedbydiversificationacrossalargeportfolioofinsurancecontractsand geographicalareas.Thevariabilityofrisksisimprovedbycarefulselectionandimplementationofunderwriting strategies,whicharedesignedtoensurethatrisksarediversifiedintermsoftypeofriskandlevelofinsured benefits.Thisislargelyachievedthroughdiversificationacrossindustrysectorsandgeography.Furthermore, strictclaimreviewpoliciestoassessallnewandongoingclaims,regulardetailedreviewofclaimshandling proceduresandfrequentinvestigationofpossiblefraudulentclaimsareallpoliciesandproceduresputinplaceto reducetheriskexposureoftheCompany.TheCompanyfurtherenforcesapolicyofactivelymanagingand promptlypursuingclaims,inordertoreduceitsexposuretounpredictablefuturedevelopmentsthatcan negativelyimpactthebusiness.Inflationriskismitigatedbytakingexpectedinflationintoaccountwhen estimating insurance contract liabilities. Thepurposeoftheseunderwritingandreinsurancestrategiesistolimitexposuretocatastrophesbasedonthe Company’sriskappetiteasdecidedbymanagement.Theoverallaimiscurrentlytorestricttheimpactofasingle catastrophiceventtoapproximately50%ofshareholders’equityonagrossbasisand10%onanetbasis.Inthe eventofsuchacatastrophe,counterpartyexposuretoasinglereinsurerisestimatednottoexceed2%of shareholders’equity.TheBoardmaydecidetoincreaseordecreasethemaximumtolerancesbasedonmarket conditions and other factors.
Key assumptions
TheprincipalassumptionunderlyingtheliabilityestimatesisthattheCompany’sfutureclaimsdevelopmentwill followasimilarpatterntopastclaimsdevelopmentexperience.Thisincludesassumptionsinrespectoflossratio, discountrateandclaimhandlingcostsofclaimpaidforeachaccidentyear.Additionalqualitativejudgmentsare usedtoassesstheextenttowhichpasttrendsmaynotapplyinthefuture,forexample:once–offoccurrence, changesinmarketfactorssuchaspublicattitudetoclaiming,economicconditions,aswellasinternalfactors suchasportfoliomix,policyconditionsandclaimshandlingprocedures.Judgmentisfurtherusedtoassessthe extent to which external factors such as judicial decisions and government legislation affect the estimates.
Otherkeycircumstancesaffectingthereliabilityofassumptionsincludevariationininterestrates,delaysin settlement and changes in foreign currency rates.
Claims development table Thefollowingtablesshowtheestimatesofcumulativeincurredclaims,includingbothclaimsnotifiedandincurred butnotreported(IBNR)foreachsuccessiveaccidentyearateachreportingdate,togetherwithcumulative payments to date.
Ingeneral,theuncertaintyassociatedwiththeultimateclaimsexperienceinanaccidentyearisgreatestwhen theaccidentyearisatanearlystageofdevelopmentandthemarginnecessarytoprovidethenecessary confidenceintheprovisionsadequacyisrelativelyatitshighest.Asclaimsdevelop,andtheultimatecostof claimsbecomesmorecertain,therelativelevelofmarginmaintainedshoulddecrease.However,duetothe uncertainty inherited in the estimation process, the actual overall claim provision may not always be in surplus.
ThedevelopmentofinsuranceliabilitiesprovidesameasureoftheCompany’sabilitytoestimatetheultimate valueofclaims.ThetophalfofeachbelowillustrateshowtheCompany’sestimateoftotalclaimsoutstandingfor each year has changed at successive year-ends.
85 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
a Insurance risk - continued
Claims Paid Triangulations as at 31 December 2018
in thousands of Nigerian Naira 1 2 3 4 5 6 7 8 9 Motor
Accident Year 2007 161,220 116,717 4,485 311 49 - - - - 2008 169,900 107,836 13,187 3,384 3,405 800 - - - 2009 181,552 146,736 15,858 801 704 - 1,143 - - 2010 225,016 122,872 10,143 693 414 551 - 117 - 2011 292,165 126,133 8,335 670 1,392 - 59 - - 2012 209,066 153,520 1,135 28 1 166 - - - 2013 253,325 56 ,039 11,951 - 745 16 - - - 2014 448,185 151,855 90 1,208 10 - - - - 2015 419,353 164,457 11,856 554 - - - - - 2016 339,042 119,370 12,595 ------2017 400,840 144,144 ------2018 409,781 ------
Fire
Accident Year 2007 23 ,548 14 ,921 551 495 409 18 - - - 2008 145,426 25 ,404 19,337 1,418 275 2,350 - - - 2009 38 ,671 30 ,029 7,095 17,130 1,133 - 1,352 - - 2010 48 ,683 170,025 14,642 169 404 69 - - - 2011 40 ,147 87 ,855 14,687 296 1,689 - 543 615 - 2012 34 ,801 71 ,849 3,309 1,185 92 31 - - - 2013 96 ,493 28 ,388 24,664 45 8,988 - - - - 2014 269,309 209,095 5 28,604 1,509 - - - - 2015 99 ,928 190,574 83,970 4,547 - - - - - 2016 139,327 202,455 28,427 ------2017 318,536 309,344 ------2018 319,792 ------
86 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
Insurance risk - continued
Claims Paid Triangulations as at 31 December 2018
in thousands of Nigerian Naira 1 2 3 4 5 6 7 8 9 General accident
Accident Year 2007 78 ,870 51 ,047 21,990 5,149 1,109 382 1,342 - - 2008 107,762 62 ,614 20,556 4,291 436 - - 10 - 2009 71 ,177 74 ,274 42,344 2,061 2,567 197 899 - - 2010 56 ,380 75 ,169 12,276 13,467 805 1,787 34 - - 2011 64 ,532 83 ,603 16,555 687 3,155 257 824 1,927 - 2012 134,451 133,618 3,124 7,988 - 1,972 1,249 - - 2013 62 ,941 23 ,864 19,583 - 1,522 978 - - - 2014 193,012 103,077 - 15,204 2,295 - - - - 2015 96 ,443 208,591 15,673 45,911 - - - - - 2016 129,179 97 ,502 15,083 ------2017 73 ,628 121,245 ------2018 14 ,382 ------
Engineering
Accident Year 2007 8,083 6,958 3,892 205 - - - - - 2008 6,219 13 ,466 ------2009 4,035 6,349 424 516 531 - 57 669 - 2010 14 ,206 26 ,429 1,836 1,194 113 - - - - 2011 33 ,165 33 ,090 19,933 48 18 - 72 - - 2012 41 ,347 20 ,691 343 48 - - - - - 2013 3,266 6,191 6,193 - - 206 - - - 2014 14 ,750 19 ,161 - 401 6 - - - - 2015 8,635 18 ,349 3,453 2,887 - - - - - 2016 14 ,981 28 ,519 787 ------2017 10 ,823 25 ,078 ------2018 12 ,771 ------
87 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
a Insurance risk - continued
Claims Paid Triangulations as at 31 December 2018
in thousands of Nigerian Naira 1 2 3 4 5 6 7 8 9 Marine
Accident Year
2007 12 ,088 28 ,812 7,852 60 30,370 6 - - - 2008 648 7,468 97 ------2009 2,312 22 ,297 338 6,912 - 200 - - - 2010 14 ,527 19 ,225 9,547 6,423 25 46 - - - 2011 35 ,171 25 ,574 30,244 190 7,084 - - - - 2012 30 ,164 116,629 - 491 - - - - - 2013 32 ,653 7,113 23,178 - 3 1,567 - - - 2014 142,076 112,097 - 605 1,574 - - - - 2015 44 ,911 37 ,147 31,554 571 - - - - - 2016 35 ,286 57 ,357 39,507 ------2017 36 ,911 273,961 ------2018 160,327 ------
The table below sets out the concentration of non–life insurance contract liabilities by type of contract:
31 December 2018 31 December 2017 Reinsurance Gross Net Gross Reinsurance share Net share liabilities of liabilities liabilities liabilities of liabilities liabilities Accident 170,622 (73,001) 97 ,621 241,800 (150,145) 91 ,655 Engineering 110,153 (55,441) 54 ,712 59,802 (38,828) 20 ,974 Fire 217,103 (156,964) 60 ,139 279,791 (178,994) 100,797 Marine 150,404 (84,408) 65 ,996 122,717 (99,860) 22 ,857 Motor 115,779 - 115,779 190,098 - 190,098 Oil & Gas 170,894 - 170,894 387,429 (288,094) 99 ,335 934 ,955 (369,814) 565,141 1 ,281,637 (755,921) 525,716
88 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
b Financial risk - continued
i Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation.
The following policies and procedures are in place to mitigate the Company’s exposure to credit risk:
1 Reinsuranceisplacedwithcounterpartiesthathaveagoodcreditratingandconcentrationofriskisavoidedbyfollowingpolicyguidelinesinrespectofcounterparties’limitsthatareseteachyear bytheboardofdirectorandaresubjecttoregularreviews.Ateachreportingdate,managementperformsanassessmentofcreditworthinessofreinsurersandupdatesthereinsurancepurchase strategy, ascertaining suitable allowance for impairment.
2 The Company sets the maximum amounts and limits that may be advances to corporate counterparties by reference to their long-term credit ratings.
3 Thecreditriskinrespectofcustomerbalancesincurredonnon-paymentofpremiumsorcontributionswillonlypersistduringthegraceperiodspecifiedinthepolicydocumentuntilexpiry,when the policy is either paid or fully provided for and Commission paid to intermediaries is netted off against amounts receivable from them to reduce the risk of doubtful debts.
4 Netexposurelimitsaresetforeachcounterpartyi.elimitsaresetforinvestmentsandcashdeposits,foreignexchangetradeexposuresandminimumcreditratingsforinvestmentsthatmaybe held.
5 ACompanycreditriskpolicywhichsetsouttheassessmentanddeterminationofwhatconstitutescreditriskfortheCompany.Compliancewiththepolicyismonitoredandexposuresand breaches are reported to the Company’s risk committee. The policy is regularly reviewed for pertinence and for changes in the risk environment.
Credit exposure The Company’s maximum exposure to credit risk for the components of the statement of financial position at 31 December 2018 and 2017 is the carrying amounts as presented below.
The credit risk analysis below is presented in line with how the Company manages the risk. The Company manages its credit risk exposure based on the carrying value of the financial instruments.
89 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
Industry analysis
As at 31 December 2018 Financial in thousands of Nigerian Naira services Government Others Other
Debt securities (Loans) - - 43,560 43 ,560 Other receivables - - 58,236 58 ,236 Statutory deposit - 315,000 - 315,000 - Debt securities (Bonds) 35,959 133,245 - 169,204 35 ,959 448,245 101,796 586,000
Trade receivables 380,632 - - 380,632 Cash and cash equivalents 5,241,513 - - 5,241,513 5,658,104 448,245 101,796 6,208,145
As at 31 December 2017
Loans and receivables 40,256 - - 40 ,256 Other receivables - - 56,810 56 ,810 Statutory deposit - 315,000 - 315,000 Held-to-maturity - Debt securities 20,418 140,182 - 160,600 60 ,674 455,182 56 ,810 572,666
Trade receivables 329,648 - - 329,648 Cash and cash equivalents 3,400,291 - - 3,400,291 3,790,613 455,182 56 ,810 4,302,605
90 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
The table below provides information regarding the credit risk exposure of the Company by classifying assets according to the Company's credit ratings of counter parties:
Neither past-due not impaired As at 31 December 2018 Investment Non-investment Non-investment Past-due grade grade grade but not in thousands of Nigerian Naira satisfactory unsatisfactory impaired Total
Other receivables - 58,236 - - 58,236 Statutory deposit 315,000 - - - 315,000 - Debt securities 169,204 - 43,560 - 212,764 Trade receivables 380,632 - - - 380,632 Cash and cash equivalents 5 ,241,513 - - - 5,241,513 6,106,349 58 ,236 43 ,560 - 6,208,145
As at 31 December 2017
Loans and receivables 40 ,256 - - - 40,256 Other receivables - 56,810 - - 56,810 Statutory deposit 315,000 - - - 315,000 Held-to-maturity - Debt securities 160,600 - - - 160,600 Trade receivables 329,648 - - - 329,648 Cash and cash equivalents 3 ,400,291 - - - 3,400,291 4 ,245,795 56 ,810 - - 4,302,605
91 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
Age analysis of financial assets past due but not impaired Total past 31 to 60 61 to 90 due but in thousands of Nigerian Naira < 30 days days days not impaired
At 31 December 2018 Trade receivables 380,632 - 380,632 380 ,632 - - 380,632
At 31 December 2017 Trade receivables 329,648 - 329,648 329 ,648 - - 329,648
Collateral Theamountandtypeofcollateralrequireddependsonanassessmentofthecreditriskofthecounterparty.Guidelinesareimplementedregardingtheacceptabilityoftypesofcollateralandthe valuationparameters.Creditriskisalsomitigatedbyenteringintocollateralagreements.Managementmonitorsthemarketvalueofthecollateral,requestsadditionalcollateralwhenneededand performs an impairment valuation when applicable.
ii Liquidity risk Liquidityriskistheriskthatanentitywillencounterdifficultyinmeetingobligationsassociatedwithfinancialinstruments.Inrespectofcatastrophiceventsthereisalsoaliquidityriskassociated with the timing differences between gross cash out–flows and expected reinsurance recoveries.
The following policies and procedures are in place to mitigate the Company’s exposure to liquidity risk:
1 Guidelinesaresetforassetallocations,portfoliolimitstructuresandmaturityprofilesofassets,inordertoensuresufficientfundingavailabletomeetinginsuranceandinvestmentcontracts obligations.
2 The Company’s catastrophe excess-of-loss reinsurance contracts contain clauses permitting the immediate draw down of funds to meet claim payments should claim events exceed a certain size.
3 Contingency funding plans are in place, which specify minimum proportions of funds to meet emergency calls well as specifying events that would trigger such plans.
92 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
Maturity profiles ThetablethatfollowssummarisesthematurityprofileofthefinancialassetsandfinancialliabilitiesoftheCompanybasedonremainingundiscountedcontractualobligations,includinginterest payable and receivable.
Forinsurancecontractsliabilitiesandreinsuranceassets,maturityprofilesaredeterminedbasedonestimatedtimingofnetcashoutflowsfromtherecognisedinsuranceliabilities.Unearned premiums and the reinsurers’ share of unearned premiums have been excluded from the analysis as they are not contractual obligations.
TheCompanymaintainsaportfolioofhighlymarketableanddiverseassetsthatcanbeeasilyliquidatedintheeventofanunforeseeninterruptionofcashflow.TheCompanyalsohascommitted lines of credit that it can access to meet liquidity needs to assist users in understanding how assets and liabilities have been matched. Reinsurance assets have been presented on the same basis as insurance liabilities. Loans and receivables include contractual undiscounted interest receivable.
Maturity analysis (contractual undiscounted cash flows basis)
As at 31 December 2018 Carrying Up to 1 Over 5 No maturity in thousands of Nigerian Naira amount year 1-3 years 3-5 years years date Total
Financial assets: Loans and receivables 43 ,560 46,827 - - - - 46,827 Other receivables 58 ,236 58,236 - - - - 58,236 Available-for-sale financial assets ------Debt securities at amortised cost ------Statutory deposit 315,000 - - - - 315,000 315,000 Trade receivables 380,632 380,632 - - - - 380,632 Cash and cash equivalents 5 ,241,513 6,115,099 - - - - 6,115,099 Total financial assets 6,038,941 6,600,794 - - - 315,000 6,915,794
Financial liabilities Insurance contract liabilities 934,955 934,955 - - - - 934,955 Borrowing 973,360 1,070,696 - - - - 1,070,696 Trade payables 759,081 759,081 - - - - 759,081 Bank overdraft 327,941 347,617 - - - - 347,617 Other payables and accruals 128,910 128,910 - - - - 128,910 Total financial liabilities 3,124,247 3,241,259 - - - - 3,241,259
Total liquidity gap 2,914,694 3,359,534 - - - 315,000 3,674,534
93 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
Maturity analysis (contractual undiscounted cash flows basis)
As at 31 December 2017 Carrying Up to 1 Over 5 No maturity in thousands of Nigerian Naira amount year 1-3 years 3-5 years years date Total
Financial assets: Loans and receivables 40 ,256 40,256 - - - - 40,256 Other receivables 50 ,155 50,155 - - - - 50,155 Available-for-sale financial assets 659,678 659,678 - - - - 659,678 Held-to-maturity 160,600 2,064 - - - - 2 ,064 Trade receivables 329,648 329,648 - - - - 329,648 Cash and cash equivalents 3 ,400,291 3,400,291 - - - - 3,400,291 Total financial assets 4,640,628 4,482,092 - - - - 4,482,092
Financial liabilities Insurance contract liabilities 1 ,281,637 1,281,637 - - - - 1,281,637 Borrowing 861,919 53,198 156,712 907,168 - - 1,117,078 Trade payables 710,333 710,333 - - - - 710,333 Bank overdraft 78 ,897 83,631 - - - - 83,631 Other payables and accruals 180,132 180,132 - - - - 180,132 Total financial liabilities 3,112,918 2,308,930 156,712 907,168 - - 3,372,810
Total liquidity gap 1,527,710 2,173,162 (156,712) (907,168) - - 1,109,282
94 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
The table below summarises the expected utlisation or settlement of assets and liabilities.
31 December 2018 31 December 2017 in thousands of Nigerian Naira Current Non-current Total Current Non-current Total
Assets Cash and cash equivalents 5 ,241,513 - 5 ,241,513 3,400,291 - 3,400,291 Investment securities 499,471 - 499,471 975,422 975,422 Trade receivables 380,632 - 380,632 329,648 - 329,648 Reinsurance assets 1 ,872,344 - 1 ,872,344 2,354,496 146,265 2,500,761 Deferred acquisition costs 226,893 - 226,893 439,068 - 439,068 Other receivables and prepayments 94 ,584 - 94,584 50,155 50,300 100,455 Investment in associate - 81,434 81,434 - 71,178 71,178 Investment properties - 1,128,638 1 ,128,638 - 1,161,581 1,161,581 Intangible assets - 12,239 12,239 - 15,505 15,505 Property, plant and equipment - 1,468,679 1 ,468,679 - 1,386,862 1,386,862 Deferred tax assets - - - - 121,904 121,904 Statutory deposit - 315,000 315,000 - 315,000 315,000 Total assets 8,315,437 3,005,990 11 ,321,427 6,573,658 4 ,244,017 10 ,817,675
Liabilities Insurance contract liabilities 3 ,088,838 - 3 ,088,838 3,260,519 - 3,260,519 Borrowing 973,360 - 973,360 - 861,919 861,919 Bank overdrafts 327,941 - 327,941 78,897 - 78,897 Trade payables 759,081 - 759,081 710,333 - 710,333 Other payables and accruals 128,910 - 128,910 180,132 - 180,132 Current income tax payable 108,451 - 108,451 71,739 - 71,739 Retirement benefit obligation - 105,569 105,569 - 182,232 182,232 Deferred tax liabilities - 8,922 8,922 - - - Total liabilities 5,386,581 105,569 5,501,072 4,301,620 1 ,044,151 5,345,771
Marketriskistheriskthatthefairvalueorfuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangesinmarketprices.Marketriskcomprisesthreetypesofrisk:foreign exchange rates (currency risk), market interest rates (interest rate risk) and market prices (price risk). The risk management frameworks for each of its components are discussed below:
95 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
iii Foreign exchange risk SovereignTrustInsurancePlcisexposedtoforeignexchangecurrencyriskprimarilythroughcertaintransactionsdenominatedinforeigncurrency.Thecompanyisexposedtoforeigncurrency through bank balances in other foreign currencies.
The carrying amounts of the company’s foreign currency-denominated balances as at end of the year are as follows:
2018 2017 Cash & cash Cash & cash in thousands of Nigerian Naira equivalents equivalents
Dollars 2 ,655,233 1 ,492,007 Pounds 996 1 ,387 Euros 11 ,084 12 ,618
iv Interest rate risk Interestrateriskistheriskthatthefairvalueorfuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangesinmarketinterestrates.Fixedinterestrateinstrumentsexposethe Company to fair value interest risk. Company does no expose to cash flow interest risk.
The Company has no significant concentration of interest rate risk.
v Equity Price risk Equitypriceriskistheriskthatthefairvalueorfuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangesinmarketprices(otherthanthosearisingfrominterestrateriskor currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
The Company’s equity price risk exposure relates to financial assets and financial liabilities whose values will fluctuate as a result of changes in market prices, principally investment securities.
The risks arising from change in price of our investment securities is managed through our investment desk and in line with the investment risk policy.
The Company’s management of equity price risk is guided by the following:
- Investment quality and limit Analysis
Investment quality and limit analysis TheBoardthroughitsBoardInvestmentCommitteesetapprovallimitsfortakinginvestmentdecisionapprovallimitsareillustratedusinganapprovalhierarchythatestablishesdifferentlevelsof authoritynecessarytoapproveinvestmentdecisionsofdifferentnairaamounts.TheapprovallimitssystemsetsapersonaldiscretionarylimitfortheChiefExecutiveOfficer;r equiresthat investmentdecisionsabovethispersonaldiscretionarylimitrequiresapprovalbytheBoardofDirectorsandsetsoutlowerlimitsfortheChiefFinanceOfficer(CFO)and,orprovidestheCFOwith the authority to assign limits to subordinates.
96 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
v Equity Price risk - continued
The Company has no significant concentration of price risk.
Theanalysisbelowisperformedforreasonablypossiblemovementsinkeyvariables(shareprice)withallothervariablesheldconstant,showingtheimpactonprofitbeforetax(duetochangesin fairvalueoffinancialassetsandliabilitieswhosefairvaluesarerecordedintheprofitorloss)andequity(thatreflectsadjustmentstoprofitbeforetaxandchangesinfairvalueof available–for–salefinancialassets).Thecorrelationofvariableswillhaveasignificanteffectindeterminingtheultimateimpactonpricerisk,buttodemonstratetheimpactduetochangesin variables, variables had to be changed on an individual basis.
31 December 2018 31 December 2017 Change Impact Impact in thousands of Nigerian Naira in variable on equity on equity
-5% (8 ,665) (8 ,259) Nigerian Stock 5% 8 ,665 8 ,259 Exchange -10% (17,330) (16 ,519) 10% 17 ,330 16,519
vi Operational risks Ouroperationalriskexposurearisesfrominadequatelycontrolledinternalprocessesorsystems,humanerrorornon-complianceaswellasfromexternalevents.Operationalriskmanagement frameworkincludesstrategic,reputationandcompliancerisks.Whencontrolsfailtoperform,operationalriskscancausedamagetoreputation,havelegalorregulatoryimplicationsorcanlead tofinancialloss.TheCompanycannotexpecttoeliminatealloperationalrisks,butbyinitiatingarigorouscontrolframeworkandbymonitoringandrespondingtopotentialrisks,theCompanyis abletomanagetherisks.Controlsincludeeffectivesegregationofduties,accesscontrols,authorisationandreconciliationprocedures,staffeducationandassessmentprocesses,includingthe use of internal audit. Business risks such as changes in environment, technology and the industry are monitored through the Company’s strategic planning and budgeting process.
The table below sets out the concentration of non–life insurance contract liabilities by type of contract:
31 December 2018 31 December 2017 Re-insurance Gross Re-insurance in thousands of Nigerian Naira Gross liabilities share of Net liabilities Net liabilities liabilities share of liabilities liabilities
Accident 170 ,622 (73 ,001) 97 ,621 241 ,800 (150 ,145) 91 ,655 Engineering 110 ,153 (55 ,441) 54 ,712 59,802 (38 ,828) 20 ,974 Fire 217 ,103 (156 ,964) 60 ,139 279 ,791 (178 ,994) 100,797 Marine 150 ,404 (84 ,408) 65 ,996 122 ,717 (99 ,860) 22 ,857 Motor 115 ,779 - 115,779 190 ,098 - 190,098 Oil & Gas 170 ,894 - 170,894 387 ,429 (288 ,094) 99 ,335 934 ,955 (369,814) 565,141 1,281,637 (755,921) 525,716
97 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
38 Insurance and financial risks - Continued
Sensitivity analysis Thenon–lifeinsuranceclaimliabilitiesaresensitivetothekeyassumptionsthatfollow.Ithasnotbeenpossibletoquantifythesensitivityofcertainassumptionssuchaslegislativechangesor uncertainty in the estimation process.
Thefollowinganalysisisperformedforreasonablypossiblemovementsinkeyassumptionswithallotherassumptionsheldconstant,showingtheimpactongrossandnetliabilities,profitbefore taxandequity.Thecorrelationofassumptionswillhaveasignificanteffectindeterminingtheultimateclaimsliabilities,buttodemonstratetheimpactduetochangesinassumptions, assumptions had to be changed on an individual basis.
It should be noted that movements in these assumptions are non–linear.
31 December 2018 31 December 2017 Impact on Change in Impact on gross Impact on net Impact on profit Impact on Impact on net profit before assumptions liabilities liabilities before tax gross liabilities liabilities in thousands of Nigerian Naira tax
Loss percentage +5% 46,748 18,491 (28,257) 53,613 22,559 (31,054) Loss percentage -5% (46,748) (18,491) 28,257 (53,613) (22,559) 31 ,054 Inflation rate +1% 9,350 3,698 (5,651) 10,723 4,512 ( 6,211) Inflation rate -1% (9 ,350) (3,698) 5 ,651 (10,723) (4,512) 6,211 Discount rate +1% 9,350 3,698 (5,651) 10,723 4,512 ( 6,211) Discount rate -1% (9 ,350) (3,698) 5 ,651 (10,723) (4,512) 6,211
39 Contingencies and commitments
a Contingencies proceedings and regulations
TheCompanyoperatesintheinsuranceindustryandissubjecttolegalproceedingsinthenormalcourseofbusiness.Whileitisnotpracticabletoforecastordeterminethefinalresultsofall pending or threatened legal proceedings, management does not believe that such proceedings (including litigation) will have a material effect on its results and financial position.
The Company is also subject to insurance solvency regulations of NAICOM. There are no contingencies associated with the Company's compliance or lack of compliance with such regulations.
b Capital commitments and operating leases
The Company has no capital commitments at the reporting date.
TheCompanyhasenteredintocommercialpropertyleasesonitsinvestmentpropertyportfolioandtheCompany'ssurplusofficebuildings.Thesenon-cancellableleaseshaveremainingtermsof between one and five years. All leases include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions.
98 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
39 Contingencies and commitments
Capital commitments and operating leases
Future minimum lease rentals receivable under non-cancellable operating leases as at 31 December are as follows:
31 December 31 December in thousands of Nigerian Naira 2018 2017
Within one year 25,937 23,577 After one year but not more than five years - 32,113 25 ,937 55 ,690
40 Contravention of the NAICOM and other guidelines: Number of in thousands of Nigerian Naira infractions Penalty
Nature of contravention
Late submission of annual report to NSE in 2018 1 2,100
41 Events after the reporting date No significant event has occurred since the reporting date which requires adjustment of, or further disclosure in the financial statements.
42 Reclassification Certain reclassifications were made to the recorded figures of prior year to conform to this year's presentation. Below are the reclassifications.
As at 31 December in thousands of Nigerian Naira 2017
i. Other receivables and prepayments Amount previously reported 50,155 ReclassificationofContributiontoNigerianInsuranceAssociationriskpoolfrom Available-for-Sale (see note ii below) 50,300 At 31 December 2018 100,455
As at 31 December in thousands of Nigerian Naira 2017
ii. Investment securities Amount previously reported 1,025,722 Reclassification of Contribution to Nigerian Insurance Association risk pool to Other receivables and prepayments (see note i above) (50,300) At 31 December 2018 975,422
99 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
43 Admissible assets
The admissible assets representing insurance funds are included in the Statement of Financial Position as follows:
Total assets representing insurance funds 2018 2017 Carrying Policy holders Total in thousands of Nigerian Naira amount Funds
Insurance Contract liabilities 3 ,088,838 3 ,088,838 3 ,088,838 3,260,519 Trade payales 759,081 759,081 759,081 710,333
Deduct: Reinsurance assets (1,872,344) (1,872,344) (1,872,344) (2,500,761)
Net Insurance Fund 1 ,975,575 1 ,975,575 1 ,975,575 1,470,091
Represented by:
Cash and cash equivalents: - Cash in bank 2 ,798,018 2 ,798,018 2,798,018 1,634,675 - Short term deposit 2 ,443,495 2 ,443,495 2,443,495 1,765,616
Equity instruments at fair value through profit or loss 173,300 173,300 173,300 165,188 Equity instrument at fair value through other comprehensive income 135,999 135,999 135,999 - Debt securities at amortised cost 190,172 190,172 190,172 - Financial asset held to maturity - - - 160,600 Treasury bills - - - 477,080
Total Admissible Assets 5,740,984 5,740,984 5,740,984 4 ,203,159
Surplus 3,765,409 3,765,409 3,765,409 2 ,733,068
100 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
44 Segment information
For the year ended 31 December 2018 Fire and General Marine and Oil and Car and in thousands of Nigerian Naira Motor property accident aviation gas engineering Total
Gross premium written 1,591,681 1,720,061 1,071,432 574,468 3,851,335 1,704,101 10,513,078 Changes in unexpired premium 233 ,056 (145 ,069) 49,565 49 ,703 (557 ,449) 195 ,193 (175,001) Gross premium earned 1,824,737 1,574,992 1,120,997 624,171 3,293,886 1,899,294 10,338,077
Outward re-insurance premium (5 ,604) (765 ,008) (410 ,824) (211 ,882) (2 ,783,835) (857 ,237) (5 ,034,390) Changes in unexpired outward premium 2 ,163 6 ,302 52,493 (7 ,909) (776 ,573) 481 ,214 (242,310) Net premium earned 1,821,296 816,286 762,666 404,380 (266 ,522) 1,523,271 5,061,377 Commission received - 53 ,195 44,356 30 ,104 175 ,067 59,880 362 ,602
Total underwriting income 1 ,821,296 869,481 807 ,022 434,484 -91,455 1,583,151 5,423,979
Gross claims paid 511 ,926 714,711 338 ,139 477,507 2,159,622 41,736 4,243,641 Gross liabilities at 31 December 2018 109 ,956 221,877 170 ,486 144,359 177 ,976 110 ,301 934,955 621,882 936,588 508,625 621,866 2,337,598 152,037 5,178,596 Gross liabilities at 1 January 2018 (190 ,098) (279 ,791) (241 ,800) (122 ,717) (387 ,429) (59 ,802) (1 ,281,637) Gross claim incurred 431,784 656,797 266,825 499,149 1,950,169 92,235 3,896,959
Reinsurance recoveries - 318,394 112 ,998 170,694 1,874,918 18,571 2,495,575 Due from re-insurers at 31 December 2018 - 161,065 81,245 81 ,493 - 46,012 369 ,814 - 479,459 194,243 252,186 1,874,918 64,583 2,865,389 Due from re-insurers at 1 January 2018 - (178 ,995) (150 ,145) (99,860) (288 ,094) (38 ,828) (755,922) Gross recoveries - 300,464 44,098 152,326 1,586,824 25,755 2 ,109,467
Net benefits and claims 431,784 356,333 222,727 346,823 363,345 66,480 1,787,492
Net income 1,389,512 513,148 584,295 87,661 -454,800 1,516,670 3,636,487
Underwriting expenses Amortised deferred acquisition costs (210 ,578) (360 ,885) (244 ,866) (128 ,980) (265 ,367) (209 ,525) (1 ,420,201) Other underwriting expenses (41 ,094) (30,990) (50 ,502) (47,402) (36 ,076) (87 ,256) (293,319) (251 ,672) (391 ,875) (295 ,368) (176 ,382) (301 ,443) (296 ,781) ( 1,713,520)
Underwriting profit 1,137,841 121,273 288,927 -88,721 -756,243 1,219,889 1,922,967
101 SOVEREIGN TRUST INSURANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - Continued
For the year ended 31 December 2017 Fire and General Marine and Oil and Car and in thousands of Nigerian Naira Motor property accident aviation gas engineering Total
Gross premium written 1,393,997 1,536,506 793 ,698 881,705 3,348,894 558 ,703 8,513,503 Changes in unexpired premium (208 ,514) (347 ,397) (132 ,675) (76,452) 660 ,603 (108 ,100) (212,535) Gross premium earned 1,185,483 1,189,109 661,023 805,253 4,009,497 450,603 8,300,968
Outward re-insurance premium (31 ,097) (540 ,044) (258 ,580) (475 ,579) (2 ,584,322) (265 ,040) (4 ,154,661) Changes in unexpired outward premium (78 ,194) 166,972 173 ,042 (82,003) (797 ,001) 323 ,399 (293,785) Net premium earned 1,076,192 816,037 575,485 247,671 628 ,174 508,962 3,852,522 Commission received 370 59 ,872 51,658 27 ,471 142 ,576 19,640 301 ,587
Total underwriting income 1 ,076,562 875,909 627 ,143 275,142 770,750 528 ,602 4,154,109
Gross claims paid 534 ,608 644,407 206 ,324 126,429 436 ,952 42,041 1,990,761 Gross liabilities at 31 December 2017 190 ,098 279,791 241 ,800 122,717 387 ,429 59,802 1,281,637 724,706 924,198 448,124 249,146 824,381 101,843 3,272,398 Gross liabilities at 1 January 2017 (137 ,289) (287 ,023) (232 ,370) (83,250) (298 ,640) (33 ,681) (1 ,072,253) Gross claim incurred 587,417 637,175 215,754 165,896 525,741 68,162 2,200,145
Reinsurance recoveries 3 ,235 301,742 47,119 70 ,444 - 3 ,185 425,725 Due from re-insurers at 31 December 2017 - 178,994 150 ,145 99 ,860 288 ,094 38,828 755 ,921 3,235 480,736 197,264 170,304 288,094 42,013 1,181,646 Due from re-insurers at 1 January 2017 - (115 ,044) (102 ,340) (39,728) - (27 ,534) (284,646) Gross recoveries 3 ,235 365,692 94,924 130,576 288 ,094 14,479 897,000
Net benefits and claims 584,182 271,483 120,830 35,320 237,647 53,683 1,303,145
Net income 492,380 604,426 506,313 239,822 533,103 474,919 2,850,964
Underwriting expenses Amortised deferred acquisition costs (140 ,568) (261 ,948) (154 ,433) (180 ,087) (380 ,953) (87 ,752) (1 ,205,741) Other underwriting expenses (90 ,119) (79,514) (70 ,098) (52,588) (81 ,969) (60 ,625) (434,912) (230 ,687) (341 ,462) (224 ,531) (232 ,675) (462 ,922) (148 ,377) ( 1,640,653)
Underwriting profit 261,693 262,964 281,782 7,147 70,180 326,542 1,210,311
102 SOVEREIGN TRUST INSURANCE PLC
STATEMENT OF VALUE ADDED
For the year ended in thousands of Nigerian Naira 2018 % 2017 %
Gross premium written 10 ,513,078 8,513,503 Net claims expenses ( 1,787,492) (1,303,145) Premium ceded to reinsurance ( 5,276,700) (4,448,446) Other charges and expenses ( 2,345,647) (1,872,651) Fees and commission 362,602 301,587 Investment income 334,495 326,676 Value added 1,800,336 1,517,524
Applied as follow:
In payment to employees Employee benefits expense 892,184 50% 870,763 57%
In payment to Government As taxes 62 ,798 3% 44,825 3%
Retained in the business
Depreciation 162,691 9% 151,516 10% Amortization 9,613 1% 17,287 1% Contingency reserve 315,392 18% 255,405 17% Profit for the year 357,658 20% 177,728 12% Value added 1,800,336 100 1,517,524 100
Value added statement represents the wealth created by the efforts of the company and its employees' effortsbasedonordianryactivitiesandtheallocationofthatwealthbeingcreatedbetweenemployees, shareholders, government and that retained for the future creation of more wealth.
103 SOVEREIGN TRUST INSURANCE PLC FIVE-YEAR FINANCIAL SUMMARY Statement Of Financial Position As at 31 December 31 December 31 December 31 December 31 December in thousands of Nigerian Naira 2018 2017 2016 2015 2014
Assets Cash and cash equivalents 5,241,513 3,400,291 3,015,331 2,582,695 2,236,083 Investment securities 499 ,471 975,422 562,846 929,904 866,956 Trade receivables 380 ,632 329,648 308,428 115,751 57,551 Reinsurance assets 1,872,344 2,500,761 1,733,315 1,822,099 2,011,841 Deferred acquisition costs 226 ,893 439,068 496,295 567,819 568,819 Other receivables and prepayments 94,584 100,455 39,006 430,493 158,711 Investment in associate 81,434 71,178 66,857 58,104 49,202 Investment properties 1,128,638 1,161,581 1,181,454 1,358,256 1,339,084 Intangible assets 12,239 15,505 20,792 29,424 25,775 Property, plant and equipment 1,468,679 1,386,862 1,620,472 842,381 783,098 Deferred tax assets - 121,904 151,764 212,945 80,725 Statutory deposit 315 ,000 315,000 315,000 315,000 315,000 Total assets 11,321,427 10 ,817,675 9,511,560 9,264,871 8,492,845
Liabilities and Equity Liabilities Insurance contract liabilities 3,088,838 3,260,519 2,838,600 3,046,784 3,073,723 Borrowing 973 ,360 861,919 750,456 531,976 806,590 Bank overdrafts 327 ,941 78,897 108,641 - - Trade payables 759 ,081 710,333 225,953 313,403 140,147 Other payables and accruals 128 ,910 180,132 121,918 119,916 37,905 Current income tax payable 108 ,451 71,739 46,158 17,108 32,936 Retirement benefit obligation 105 ,569 182,232 184,406 210,488 240,689 Deferred tax liabilities 8 ,922 - - - - Deposit for shares - - - - 410,284 Total liabilities 5 ,501,072 5,345,771 4,276,132 4,239,675 4,742,274 Equity Issued and paid-up share capital 4,170,412 4,170,412 4,170,412 4,170,412 3,435,879 Share premium 116 ,843 116,843 116,843 116,843 116,843 Contingency reserve 2,647,988 2,332,596 2,077,191 1,885,195 1,671,227 Revaluation reserve 225 ,103 225,103 175,288 - - Fair value reserve 20,394 4,949 ( 3,984) 1,171 13,416 Accumulated losses ( 1,360,385) (1,377,999) (1,300,322) (1,148,425) (1,486,794) Total equity 5 ,820,355 5,471,904 5,235,428 5,025,196 3,750,571
Total liabilities and equity 11,321,427 10 ,817,675 9,511,560 9,264,871 8,492,845
Statement Of Profit Or Loss
Gross premium written 10 ,513,078 8,513,503 6,399,854 7,132,224 7,286,511
Premium earned 10 ,338,077 8,300,968 6,763,129 3,934,235 4,606,041
Profit before income tax 540 ,554 202,694 44,975 430,486 326,021
Profit after income tax 344 ,236 157,869 23,592 557,849 294,943 Per 50k share data (kobo) Earnings per share - Basic & diluted 4 .13 1.89 0.28 7.11 4.29
104