Insurance: NEW JUBILEE INSURANCE COMPANY LIMITED - Year Ended December 31 2005

The NJI shares are trading at the stock market at a very high premium. During the last 52 weeks the five-rupee share value of the company reached Rs 162.05 per share.
The buoyant stock market has boosted its investment income, thus supported NJI in increasing its pre-tax profit by 126% which is commendable growth despite only marginal improvement in the underwriting profit. The directors pointed out that for insurance incurred under writing loss of Rs 55 million but marine and motor business yielded handsome profits of Rs 57 million and Rs 51 million.
During the year under review, the company's Earning Per Share improved to Rs 7.59 from the previous year's EPS of Rs 2.81. At the recent market value of its five-rupee per share at Rs 102.90, the P/E Ratio is multiple of 14x, which exhibits very high expectations of its shareholders. Masood Noorani retired as NJI's Managing Director and Chief Executive officer on July 9, 2005 after 23 years of utilisation service in this capacity.
New Jubilee Insurance Company Limited (NJI) is a public limited company engaged in general insurance business of fire and property, marine, aviation and transport, motor, accident and health and liability.
The company was incorporated in May 1953, in the province of Sindh having its registered and head offices situated in Jubilee Insurance House, I.I. Chundrigar Road Karachi. The company has extensive branch/offices network in all major cities and towns of Sindh, Punjab and NWFP.
The company has long and outstanding reinsurance arrangements and relationships with internationally acclaimed reinsurers viz, Swiss Re, Munich Re, Lloyds, Hanover Re, and Mitsui Sumitomo Re. The company is also supported by internationally reputed reinsurance brokers including AON Group, Willis and UIB.
NJI is listed on the Karachi and Lahore Stock Exchanges. On April 26, 2004, the closing market price of its share was recorded at Rs 102.90 per five-rupee share. During the last one year the highest price of the share was recorded at Rs 162.05 per share which works out to more than 32 times of the par value.
As regards shareholders of the company, major shareholders include the Aga Khan Fund for Economic Development (AKFED), Hashoo Group, Pakistan Cables Ltd, Hassanali & Company Pvt Ltd, Trustee of Pakistan Services Employees Provident Fund and Trustee Hashwani Hotels Employees Provident Fund. In addition, its 1239 individual shareholders own 19.68 percent of the company's stock.
In 2003, NJI because the first Pakistani Insurance Company to acquire a foreign company when it took over the Pakistan Operations of CGU International Insurance Plc (Commercial Union). Together with AKFED, NJI has also acquired majority control of CU Life Assurance Company of Pakistan Ltd, now New Jubilee Life Insurance Company.
During the year 2005, the company posted gross premium in the sum of Rs 1.737 billion as compared to written premium of Rs 1.404 billion in the previous year registering robust growth 23.7%. The growth is all the more commendable in the backdrop of the decreasing rates of premium due to stiff competition.
All classes of business, except the Fire & Property account and treaty account, produced good results. Fire insurance business resulted in an underwriting loss of Rs 55 million due to some big losses. On the other hand, marine and motor businesses yielded handsome profits of Rs 57 million and Rs 51 million respectively. The directors emphasized that they are continuing to strengthen their risk management and under-writing procedures to improve fire portfolio.
The net premium revenue increased to Rs 917.12 million by rupees 277.19 million from Rs 639.81 million. But on the overall basis the underwriting profit (result) increased only marginally by Rs 2.03 million to Rs 69.60 million from Rs 67.57 million in the preceding year.
The net claims increased by 41.1% expenses by 17.4% and net commission by 103.5% as compared to the preceding year's. The underwriting result was subdued because of aforesaid charges (expenses). However profit centres other than the core business of underwriting, made substantial contributions in profitability. This enabled the pretax profit to shoot up by 125.9% (Rs 342.63 million) to Rs 614.41 million over preceding year's pretax profit of Rs 271.98 million.
The major gain was in the investment income which was booked at Rs 487.25 million (2004: Rs 151.86 million) showing increase by 120.8% or Rs 335.39 million.
In this department the company was able to book substantial capital gains from the sale of shares due to buoyant stock market.
Equally important for the insurance companies was the government decision to remove discriminatory treatment of taxing of capital gains of insurance companies as business income. The directors thank the government for this decision.

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Performance Statistics                (Million Rupees)

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December 31                          2005         2004

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Share Capital-Paid-up:             366.19       318.43

Reserves & Profit:                 826.99       428.98

Shareholders Equity:             1,193.18       747.41

Provision for Outstanding

Claims (including IBNR):           432.16       564.01

Provision for Unearned Premium:    631.38       474.23

Commission Income Unearned:         11.60        56.51

Total Underwriting Provisions:   1,075.14     1,094.75

Deferred Liabilities:                4.19         4.76

Creditors & Accruals:              270.73       393.17

Other Liabilities:                 242.15       196.64

Cash & Bank Deposits:              862.12       608.22

Loans to Employees:                  0.86         1.10

Investments:                     1,071.85       857.31

Investment Properties:              73.59        75.82

Deferred Taxation:                  34.64        41.26

Other Assets:                      730.13       874.71

Fixed Assets:                       84.76        53.71

Negative Goodwill:                 (72.56)     (75.40)

Total Assets:                    2,785.39     2,436.73

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Revenue, Profit & Pay Out

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Net Premium Revenue, from:

Fire & Property:                   157.65            -

Marine, Aviation & Transport:      221.76            -

Motor:                             318.24            -

Liability:                           6.96            -

Accident & Health:                 159.33            -

Others:                             53.27            -

Treaty:                             (0.09)           -

Aggregate Premium:                 917.12       639.81

(Net Claims):                     (554.27)    (392.70)

(Expenses):                       (240.91)    (205.26)

Net Commission:                    (52.34)       25.72

Underwriting Result:                69.60        67.57

Investments Income:                487.25       151.86

Rental Income:                      35.85        37.78

Return on Bank Deposits:            21.51        10.54

Other Income:                        5.27         8.05

Share of Associate Profit:           1.72         3.16

Gen & Admin (Expenses):             (6.79)      (6.98)

Profit Before Taxation:            614.41       271.98

Profit After Taxation:             556.20       206.15

Stock Dividend:                       1:5       15:100

Dividend Cash (%):                  30.00        30.00

Earning Per Share (Rs):              7.59         2.81

Share Price (Rs) on 26/04/06:      102.90            -

Premiums Written:                   1,737        1,404

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Financial Ratios:

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Price/Earning Ratio:                13.55            -

Book Value Per Share:               16.29        11.73

Price/Book Value Ratio:              6.32            -

Net Profit/Underwriting Result

Ratio (%):                         799.14       305.09

Net Claims/Net Premium (%):         60.44        61.38

Net/Gross Premium Ratio (%):         2.79        45.56

R.O.E. (%):                         46.61        27.58

R.O.A. (%):                         19.97         8.46

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