Insurance: EFU LIFE ASSURANCE LIMITED - Analysis of Financial Statements CY 2004 - CY 2008
EFU Life Assurance Limited (EFU Life) was incorporated as a public limited life insurance company on August 9, 1992 after the Government of Pakistan had opened life insurance business to the private sector. The company started operation from November 8, 1992. In 2007, the company completed its 75 years in business.
Company is engaged in life insurance business carrying on ordinary life business, pension fund business and accident and health business and has established following statutory funds, as required by the Insurance Ordinance, 2000. The company has discontinued pension business and accordingly no new business has been written under this fund.
OPERATING PERFORMANCE
The gross premium stands at Rs 7.25 billion in CY08 (2007: Rs 4.82 billion), depicting a CAGR of 30.94% and a y-o-y increase of 50.49%. The net premium revenue amounted to Rs 6.81 billion in CY08 (2007: Rs 4.43 billion), registering a CAGR of 31.67% and a y-o-y increase of 53.61%. Individual regular premium showed an increase of 46% and recorded premium of Rs 4.58 billion in CY08 (2007: Rs 3.15 billion). This amount included new business of Rs 1.83 billion (2007: Rs 1.14 billion) and Rs 2.73 billion (2007: Rs 2.01 billion) of renewal premium. Business from tied sales agency force grew and bancassurance grew by 60%. The company focused on developing its distribution channels and human resource so as to penetrate further into the largely untapped market. In CY08, EFUL had bancassurance channels with 5 banks including the top 3 banks in Pakistan. The renewal premium income is growing at a reasonable rate. The group benefits business has grown by 34% and contributed to gross premium Rs 1.86 billion in CY08 (2007: Rs 1.38 billion). In CY08 the death and disability claims amounted to Rs 746 million with individual and group claims amounting to Rs 124 million and Rs 622 million respectively.
The underwriting profit/gross premium has increased from 53.64% in CY07 to 54.01% in CY08. The underwriting profit/net premium has increased from 49.34% in CY07 to 50.71% in CY08. This is due to a greater increase in underwriting profit (54.67%) than net premium (53.61%) or gross premium (50.49%). The underwriting profit has increased due to a significant increase in gross premium over the year.
PROFITABILITY
The investment income/net premium has decreased from 68.33% in CY07 to -49.47% in CY08. The investment income/investment assets has declined from 25.75% in CY07 to -34.77% in CY08. This is due to a loss in investment income of Rs 3.37 billion in CY08 (2007: Rs 3.03 billion). The company recorded full impairment of investments (available-for-sale securities) despite relaxation by SECP to record investments at cost and gradually record impairment in every quarter of 2009. Otherwise the company would have recorded pre-tax profit of Rs 599 million which currently is a loss of Rs 315 million. The loss after tax for the company in CY08 is Rs 473 million (2007: Rs 1207 million). Hence the profit after tax/net premium shows a significant decline from 27.24% in CY07 to -6.95% in CY08.
EXPENSE ANALYSIS
The loss ratio (claim ratio) has decreased from 25.88% in CY07 to 24.13% in CY08. The expense ratio has decreased from 35.43% in CY07 to 34.90% in CY08. Consequently the combined ratio has declined from 61.31% in CY07 to 59.02% in CY08. On a y-o-y basis, the total claims and underwriting expenses increased at 43.21% and 51.28% respectively while net premium grew at 53.61%. The return on assets has declined from 9.07% in CY07 to -3.98% in CY08. Reinsurance expense/net premium has recorded a declined from 8.72% in CY07 to 6.51% in CY08. Hence the expense analysis shows that the company's expenses and claims were within reasonable limits.
DEBT MANAGEMENT
The debt/assets ratio has increased from 6.8% in CY07 to 8.9% in CY08. The debt/equity ratio has increased from 70.62% in CY07 to 84.36% in CY08. This is because of total liabilities have increased by 17.26% on a y-o-y basis while total assets total equity have decreased by 10.73% and 1.84% respectively. The increase in total liabilities is due to increase in creditors and accruals of 17.25% on a y-o-y basis.
MARKET VALUE RATIOS
The dividend per share has increased drastically on a y-o-y basis from Rs 0.84/share in CY07 to Rs 4.50/ share in CY08, an increase of 435.71%. This will build investor confidence and will boost demand of the EFUL stock and will contribute to increase in share price. The EPS has declined from Rs 16.10/share in CY07 to negative Rs 6.31/share in CY08. This decline in EPS is temporary and is extraordinary due to record of full impairment of investments. The other profitability indicators like debt, expenses and claims remain sound and growth in premium is seen. The company is expected to rebound in the next calendar year.
The share price has declined over the year primarily due to the crisis at the stock exchange which initiated from the liquidity crisis in the financial sector and aggravated with the imposition of floor on the stock exchange. The market price of all stocks tumbled down drastically. The share price has declined from Rs 430 per share in June 08 to Rs 113 per share in June 09. The future seems optimistic as the floor has been removed from KSE and the company's performance has improved.
FUTURE OUTLOOK
The company currently has alliance with 9 banks in Pakistan which will bring new business to the company in the upcoming years. The bancassurance channel is profitable and will enable the company to increase its market share and outperform its competitors. The company is focusing on business persistency in all classes of business, which will impact long-term profitability of the company. In the group business the company is continuing to focus on the conventional groups like employer-employee but is also trying to diversify into relatively new groups like bank-customer.
The motor segment was the most profitable for the insurance sector in the last 5 years due to consumer finance. However with tight monetary policy and reversal of growth in consumer finance, the motor segment of insurance has deeply suffered. Also the reinsurance rates have increased all over the world, making obtaining reinsurance expensive. This will have a negative impact on profits. The company can benefit by achieving growth in business and diversification.
The major achievement for the company was upgrade of credit rating to AA-, which now places the company among top corporate entities. It also received the 25th Corporate Excellence Award from Management Association of Pakistan in the financial category. The company has launched two new unit linked products with an underlying Islamic fund and other products for marriage, child education, retirement and bancassurance.
EFUL is focusing on improving and developing technology. It has initiated projects that include SMS service regarding policy information, an online portal for the same purpose and to make premium payments. These projects will complete in the middle of 2009 and will position EFUL as the pioneer of online client systems in the life insurance industry.
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COMPANY SNAPSHOT
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Name of company EFU LIFE ASSURANCE LIMITED
Nature of Business INSURANCE
Ticker EFUL
Net Premium CY '07 PKR. 4,431,546,000
Net Premium CY '08 PKR. 6,807,131,000
Share price PKR. 11.40
S Market Capitalisation PKR. 8,3550,000,000
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EFU LIFE INSURANCE-KEY FINANCIAL DATA
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Earnings FY'04 FY'05 FY'06 FY'07 FY'08
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Rupees in Thousand
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Gross Premium 1883699 2500098 3338078 4817874 7250509
Net Premium Revenue 1719822 2257827 3042316 4431546 6807131
Total Claims Incurred 631818 748823 951440 1146866 1642425
Underwriting Expenses 466248 673230 920399 1570230 2375468
Underwriting Result 907027 1267935 1698785 2377138 3676739
Investment Income 301222 861892 465565 3027910 -3367270
Profit Before Tax 214830 296214 337769 1434745 -314959
Profit After Tax 140830 195867 235969 1207292 -473159
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Balance Sheet FY'04 FY'05 FY'06 FY'07 FY'08
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Rupees in Thousand
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Paid up capital 165000 210000 300000 500000 750000
Equity 365162 536279 730248 1277925 1254381
Investments (Book Value) 3689747 5156704 6573206 11757140 9684973
Cash & Bank balances 382418 455453 683275 949466 1425424
Total Assets 4259061 5968374 7700228 13315250 11886331
Total Liabilities 401556 514536 653144 902457 1058215
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Operating Performance FY'04 FY'05 FY'06 FY'07 FY'08
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Underwriting Profit / Net Premium % 52.74 56.16 55.84 53.64 54.01
Underwriting Profit / Gross Premium % 48.15 50.72 50.89 49.34 50.71
Gross Premium 1883699 2500098 3338078 4817874 7250509
Net Premium Revenue 1719822 2257827 3042316 4431546 6807131
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Expense Analysis (%) FY'04 FY'05 FY'06 FY'07 FY'08
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Loss Ratio 36.74% 33.17% 31.27% 25.88% 24.13%
Expense Ratio 27.11% 29.82% 30.25% 35.43% 34.90%
Combined ratio 63.85% 62.98% 61.53% 61.31% 59.02%
Return on Assets 3.31% 3.28% 3.06% 9.07% -3.98%
Reinsurance Expense/Net Premiums 9.53% 10.73% 9.72% 8.72% 6.51%
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DEBT MANAGEMENT FY'04 FY'05 FY'06 FY'07 FY'08
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Debt/Assets Ratio 9.43% 8.62% 8.48% 6.78% 8.90%
Debt/Equity 109.97% 95.95% 89.44% 70.62% 84.36%
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Capital Adequacy FY'04 FY'05 FY'06 FY'07 FY'08
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Paid-up Capital / Total Equity 0.45 0.39 0.41 0.39 0.60
Equity/Total Assets 0.09 0.09 0.09 0.10 0.11
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Profitability Ratios FY'04 FY'05 FY'06 FY'07 FY'08
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Investment income/Net premiums 17.51 38.17 15.30 68.33 -49.47
Investment income/Investment assets 8.16 16.71 7.08 25.75 -34.77
Investment Income 301222 861892 465565 3027910 -3367270
Profit After tax/Net Premium 8.19 8.68 7.76 27.24 -6.95
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Market Value Ratios FY'04 FY'05 FY'06 FY'07 FY'08
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Earnings Per Share 6.71 6.53 7.87 16.10 -6.31
Dividends per share 0.91 1.17 1.40 0.84 4.50
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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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