Insurance: EAST WEST INSURANCE COMPANY LIMITED - Year Ended December 31, 2006 (Audited)
"Besides transacting traditional insurance business like fire, marine and motor, East West Insurance underwrites specialized portfolio for which it has created specialized divisions within the company namely, Engineering, Crops and Livestock Divisions.
The company business is thus well diversified and provides coverage to a wide range of agricultural, industrial and commercial business activities". This is how the company has depicted its areas of operation in the opening paragraphs of annual report 2006. Diversification and specialization are good provided these are handled properly.
East West Insurance Company Limited (EWI), founded by Late Unus Khan, was incorporated as a public limited company in Pakistan in the year 1983. EWI is listed on Karachi Stock Exchange. The company has network of branches and agencies throughout the country but it does not underwrite business outside Pakistan. Number of company employees at the end of 2006 was 165 (2005: 159 employees). Pacra has during the year under review upgraded the company's Insurer Financial Strength Rating from "BBB+" (Triple B Plus) to "A-" (Single A Minus) with stable outlook.
The authorised capital of EWI is Rs 300 million, comprising 30 million shares of Rs 10 each. As on December 31, 2006 the paid up capital was Rs 150.305 million, which was held by 330 shareholders, of which 329 individuals held 70.6% shares. The rest of the shares were with a joint stock company, Central Depository Company of Pakistan. Details regarding ownership interest by the directors or their associates have not been provided.
Total assets of EWI increased by 12% to Rs 611 million on December 31, 2006 compared to Rs 545 million on December 31, 2005. The increases are seen in Investments and Prepaid Re-insurance Premium Ceded.
Investment increased by 48% to Rs 316 million (52% of Total Assets) compared to Rs 214 million (39% of TA) as on December 31, 2005. Net increase in assets has been largely financed through retention of profits, increase in Provision for Un-earned Premium and adjustment in Cash balances. Of the total investment, EWI had Marketable Securities at 53% (2005: 42%) and TFCs at 46% (2005: 28%). Shareholders Equity on December 31, 2006 as percentage of Total Assets was 54% (2005: 52%), which reflects EWI's financial strength.
During the year ended December 31, 2006, EWI has written a Gross Direct Premium of Rs 404 million, showing a growth rate of 25% as compared with the year 2005 at Rs 324 million. In terms of various classes of business, growth was mainly derived from Fire and Marine insurance which shows combined growth of over 50%. The net premium revenue for the year however saw only 2% increase to Rs 237 million as compared to Rs 233 million for last year.
As percentage of Net Premium Revenue, Net claims have decreased from 36% in the previous year to 35% in the year 2006. The underwriting profit for the year was 25% lower at Rs 49 million (21% of net premium revenue) compared to Rs 65 million (28% of the net premium revenue) for the previous year. This was due to higher Expenses and Net Commission during the year.
The company's investment income for the year under review was Rs 64.5 million as compared to Rs 91.7 million last year manifesting a decline of 30%. This decrease has been attributed to lower gain on sale of listed securities at Rs 36 million for 2006 (2005: Rs 86 million). Total income for the year also declined by 30% to Rs 114 million compared to Rs 163 million for the previous year.
The company strictly controlled general, administrative and other expenses, which increased by 2% only over the previous year. However, due to lower total income for 2006 as discussed above, EWI closed the year with profit after tax at Rs 60 million as compared to Rs 113 million for 2005. ROE for the year under review declined to 18% compared to 40% for the previous year. ROE is still satisfactory though it has seen big decline from the year 2005. The Board has recommended cash dividend at 10% and bonus issue at 15%. Performance statistics are given below.
The Chairman of the Board, in his Review, has stated: "I am pleased to announce that during the year 2006 the management of East West Insurance Company has taken important strategic steps to consolidate its position in the insurance market. In doing so it did not lose site of the necessity of building up solid financial foundation. During the period under review, I have personally monitored the performance of the company and rendered suitable advice in the meetings of the Board of Directors for further improvement wherever it was required". Regarding prospects of the year 2007, he stated: "In view of the softening of the market cycle and also in conjunction with various measures adopted by the management of your company, I anticipate a growth in gross premium between 15 to 20% during the year 2007".
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Performance Statistics (Audited)
(Rs, 000)
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Balance Sheet (as on Dec. 31) 2006 2005
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Cash, bank and deposits: 69,885 150,224
Investments: 316,224 213,767
Deferred taxation, etc: 0 0
Premium due but unpaid: 4,688 4,132
Amounts due from re-insurers: 10,808 9,446
Other current assets: 157,928 117,253
Total Current Assets: 559,533 494,822
Total Fixed Assets: 51,568 50,304
Total assets: 611,101 545,126
Paid up capital: 150,305 122,977
Reserves & Retained earnings: 182,546 161,726
Shareholders Equity: 332,851 284,703
Underwriting provisions: 230,708 215,469
Total Creditors, accruals: 47,542 44,954
Total Liabilities: 278,250 260,423
Total Liabilities & Equity: 611,101 545,126
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Ratios: 2,006 2,005
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Cash and bank/Total Assets: 11% 28%
Investments/Total Assets: 52% 39%
Premium due but unpaid/Total Assets: 1% 1%
Total Current Assets/Total Assets: 92% 91%
Fixed Assets/Total Assets: 8% 9%
Shareholders Equity/Total Assets: 54% 52%
Underwriting Provisions/Total Assets: 38% 40%
Total Liabilities/Total Assets: 46% 48%
Book Value (Par Rs 10/share)- Rs: 22.15 23.15
Quoted Price (11-7-07)- Rs: 111.00 -
Quoted Price/Book Value Ratio - X: 5.01 -
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Revenue Account (Y end Dec. 31) 2006 2005
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Net premium revenue: 237,097 233,049
Net claims: 83,561 85,031
Expenses, net commissions, etc: 104,601 82,602
Total, claims, expenses, commission: 188,162 167,633
Underwriting result: 48,935 65,416
Investment income: 64,599 91,725
Other income: 624 5,627
Total Income: 114,158 162,768
Total Gen. and admn. Expenses: 41,932 41,260
Profit before tax: 72,226 121,508
Provision for Taxation: 11,779 8,576
Profit after tax: 60,447 112,932
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Ratios: 2006 2005
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Underwriting result/net premium revenue: 21% 28%
Underwriting result/Total Assets: 8% 12%
Underwriting result/Total income: 43% 40%
Investment income/Total Income: 57% 56%
Profit after taxation/Total Assets: 10% 21%
Profit after tax/Total Equity: 18% 40%
EPS (Year end capital)-Rs: 4.02 9.18
Price Earning Ratio-Times: 27.60 -
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Cash Flow Summary 2006 2005
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Total cash flow from
Operating activities: -12,359 45,385
Total cash flow from
Investing activities: -51,689 25,189
Total cash flow from
Financing activities: -16,291 -8,501
Net cash from All activities: -80,339 62,073
Cash at beginning of period: 150,224 88,151
Cash at end of period: 69,885 150,224
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COMPANY INFORMATION: :Chairman: Chief Justice Mian Mahboob Ahmad (Retd); Managing Director & CEO: Naved Yunus; Director: Javed Yunus; Legal Advisor: Rizwan Ali Dodani, Advocate; Company Secretary: Shabbir Ali Kanchwala; Registered Office: 27, Regal Plaza, Jinnah Road, Quetta; Head Office: 410, EFU House (Qamar House), M.A. Jinnah Road, Karachi; Auditors: BDO Ebrahim & Co, Chartered Accountants; Web Address: www.eastwestins.com
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