Insurance: IGI INSURANCE LIMITED Analysis of Financial Statements Financial Year 2004-September 2006
Insurance Limited (formerly known as International General Insurance Company of Pakistan Limited) was incorporated in 1953. IGI, a part of the Packages Group, was listed on the Karachi and Lahore Stock Exchanges in December 1987.
IGI mainly provides non-life insurance facilities including travel insurance, fire insurance, marine insurance, auto insurance, health insurance, and other miscellaneous insurances such as protection against as business interruption, contractors all risk, risk of computer data loss and machinery erection all risks.
To date, IGI has an asset base of over 4 billion rupees and has offices in Karachi, Lahore, Islamabad, Sialkot, Multan and Faisalabad, serving a large number of prestigious local and multinational clients throughout Pakistan.
The Company has been awarded "AA" (Double A) Insurer Financial Strength (IFS) Rating with a Positive Outlook by Pakistan Credit Rating Agency (Private) Limited (PACRA), which denotes a strong capacity to meet policyholders' and contract obligations. IGI Insurance Limited has re-insurance agreements with such as Swiss Re and Sumitomo Re.
In line with the company's growth strategy, it has acquired the Pakistan operations of Royal and SunAlliance Plc UK. As a result of this transfer, IGI has positioned itself amongst the top five insurance companies operating in Pakistan. IGI Insurance Limited is now a global network partner of Royal and SunAlliance Plc UK.
RECENT RESULTS (SEP'07): During the nine months period, Gross Written Premium grew by 14%, from Rs 692mn in September 2006 to Rs 791mn in September 2007. The rapid growth in premium has meant higher net earned premium and commissions, which grew by 41%, from Rs 351mn in 2006 to Rs 494mn in 2007. Net Claims grew by 121% during the period mainly due to increased Motor claims.
The underwriting profit decreased by 7%, from Rs 175mn in 2006 to Rs 163mn in 2007 despite higher claims. Overall risk profile has shifted towards Motor and miscellaneous sectors reflecting significant growth in these classes in current year. The share of Fire Marine, Motor and Miscellaneous during the current and 2006 corresponding period is as follows:
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Period Fire Marine Motor Miscellaneous
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2007 28% 16% 43% 13%
2006 31% 22% 36% 11%
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September September Increase/
30, 2007 30, 2006 (Decrease)
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(Rupees in million) %
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Gross premium written 791 692 99 14
Net earned premium and net commission 494 351 143 41
Net Claims 256 116 140 121
Management Expenses 91 72 19 26
Underwriting profit 163 175 (12) (7)
Investment Income 407 2,146 1,739 (81)
General & Admin. Expenses 81 43 38 88
Goodwill - 38 (38) (100)
Profit before tax 432 2,173 1,741 (80)
Earning per share - Rupee 12.42 67.20 (54.78) (82)
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Increase in proportion of Motor and Miscellaneous is attributed to the introduction of Leasing Portfolio and new products like Health and Travel Insurance respectively, to which IGI Insurance has received positive market response. General & administrative expenses rose by 88%, mainly due to aggressive marketing of the new products during the same period.
As per the industry trend, motor insurance coverage forms a major earning source of IGI as well followed by fire. The main reason for the high amount of premiums originating from the motor sector was owing to the affordable car financing facilities. Moreover, mobilization of construction sector spurred demand for fire insurance. Likewise, motor insurance sector also faced the greatest amount of claims and losses in consequent of rising traffic accidents, congestion and rising motor theft cases.
IGI posted a robust gross premium trend in 2006. The gross premiums rose by 42.37%. The major contributing sector was the motor insurance, which surged by 37.5% in the same year. While the net claims also increased tremendously, the high net premiums were more than enough to compensate for it. Thus, underwriting profit remained on a higher side. The decrease depicted in the underwriting profit ratios was due to the high base effect as net premiums and gross premiums subsequently increased.
Premium has shown a momentous growth and is indicative of the rising demand for insurance and thus greater awareness. However, insurance sector needs to be pushed further in order for it to be at par with other nations of the world.
Notwithstanding a rise in the expenses for IGI, they are an indicative of greater business for the company. The commissions and underwriting expenses; claim rate and operating expenses as well as reinsurance expense have all shown an increase owing to greater demand for insurance products in general.
In particular, auto insurance took the largest share in the total claims of IGI for the same reasons as discussed before. The loss ratio as measured by net claims to net premiums increased in 2005 owing to higher than proportionate increase in the net claims than the net premiums. It then decreased in 2006 on account of high base effect (premiums rose by a larger percentage). Underwriting expenses rose marginally over the years under consideration as indicated by a declining trend in expense ratio mainly on account of rising premiums. Following the same trend, the combined ratio (as measured by expense ratio + loss ratio) also posted a downward trend.
Net income in absolute terms rose tremendously in 2006 as a result of more than 27% increase in investment income from Rs 258million to Rs 7316 million. The company's investment income mainly comprises equity investment in the listed and non-listed companies' shares and associated companies.
The company's investment income is thus volatile subject to changes in the political scenario and other external variables. TFCs and government securities form a meager part of the investment portfolio as well as the investment income.
In FY'06 the investment income spurred as the KSE index performed well and thus IGI was able to reap capital gains and high dividend income. Investment income to net premiums ratio as well as investment income to investment assets ratio increased by a significantly large amount in the same year.
The earnings per share shot up dramatically in FY'06 on account of high level of investment income as discussed before. Price-earnings ratio therefore declined. The dividends declared by the company lowered significantly in FY'06 after increasing in FY'05. The low DPS was as a result of large shareholder base.
Capital adequacy has been on a higher side for IGI. This was mainly due to the large amount of reliance given to equity financing. The large paid up capital boosted the equity/total assets ratio for the company from a mere 0.42 to 0.82. Paid up capital to equity ratio however decreased in consequent of high base effect.
FUTURE OUTLOOK: In the budget '08, the requirement of compulsory re-insurance with Pakistan Reinsurance Company Ltd (PAKRI) has been omitted from the insurance ordinance. Accordingly, non-life insurance companies are free to reinsure from PAKRI or any other foreign company. Furthermore, tax on capital gain on the sale of Modarabah certificates or listed shares has now been extended up to June 2008 in Budget FY08.
This augurs well for the insurance sector and will continue to encourage insurance companies to realize capital gains on their equity investments in FY08. This will enable the companies to enhance their equity base, going a long way in supporting the overall growth of insurance business in the country.
The Government has also exempted 5% excise duty on health insurance of non-life insurance companies in Budget FY08. Nevertheless, the effect will not be substantial since health insurance forms a very small part of the total insurance premiums. IGI would be one of the major beneficiaries of this exemption as its share in miscellaneous segment as a percentage of its total gross premium is on a higher side.
A new insurance policy is expected in the next few months. This policy will include lots of positive reforms and an incentive package for the insurance sector, in order to boost its penetration level in Pakistan. The penetration level is currently 0.4% of GDP for non-life insurance, far below than 2.53% in India.
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IGI-KEY FINANCIAL DATA
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Earnings FY'04 FY'05 FY'06
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Rupees in Thousand
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Gross Premium 423160 632224 900098
Net Premium Revenue 208,696 316,153 426,472
Total Claims Incurred 86,438 142,906 186,982
Underwriting Expenses 69,350 94,187 104,915
Underwriting Result 106,878 190,065 226,929
Investment Income 231,309 258,822 7,315,629
Profit Before Tax 250,294 326,757 7,357,109
Profit After Tax 222,294 289,743 7,342,370
Balance Sheet FY'04 FY'05 FY'06
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Rupees in Thousand
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Paid up capital 122,808 153,510 199,563
Equity 894,156 1,228,755 8,509,721
Investments (Book Value) 854,682 1,873,786 9,246,735
Cash & Bank balances 189,869 260,088 139,557
Total Assets 1,526,007 2,957,949 10,399,049
Total Liabilities 631,851 1,729,194 1,889,328
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Operating Performance (%) FY'04 FY'05 FY'06
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Underwriting Profit / Net Premium 51.21 60.12 53.21
Underwriting Profit / Gross Premium 25.26 30.06 25.21
Loss Ratio 41.42 45.20 43.84
Expense Ratio 33.23 29.79 24.60
Combined ratio 74.65 74.99 68.44
Return on Assets 14.57 9.80 70.61
Reinsurance Expense/Net Premiums 102.76 99.97 111.06
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DEBT MANAGEMENT FY'04 FY'05 FY'06
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Debt/Assets Ratio 41.41 58.46 18.17
Debt/Equity 0.71 1.41 0.22
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Capital Adequacy FY'04 FY'05 FY'06
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Paid-up Capital / Total Equity 0.14 0.12 0.02
Equity/Total Assets 0.59 0.42 0.82
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Profitability Ratios FY'04 FY'05 FY'06
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Investment income/Net premiums 110.84 81.87 1715.38
Investment income/Investment assets 27.06 13.81 79.12
Profit After tax/Net Premium 106.52 91.65 1721.65
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Market Value Ratios FY'04 FY'05 FY'06
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Earnings Per Share 15.15 14.52 367.92
Price to earnings ratio 16.50 18.66 1.08
Dividends per share 4.50 4.00 4.00
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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