EFU General Insurance was incorporated in September 1932 by Ghulam Mohammad along with the mutual aid of Aga Khan III and the Nawab of Mughal. Also, the company is renowned as the mother of other insurance organisations of EFU Group.
MARKET SHARE The company is the titan of non-life insurance segment and holds the biggest share of 26 percent in the private sector non-life insurance segment in Pakistan, with Jubilee General Insurance and Adamjee Insurance following the lead with market shares of 19 percent and 16 percent, respectively.
It is interesting to note that these top three insurers hold a cumulative share of 62 percent in the private sector non-life insurance segment, as of March 2014. The rest is spread across 23 relatively smaller non-life insurers, whose market shares are not more than 5 percent on individual basis.
CREDIT RATING The Insurer Financial Strength rating of EFU General Insurance has been uplifted from 'AA' (Double A) to 'AA+' (Double A Plus) with a 'stable' outlook, by JCR-VIS Credit Rating Company Limited in December 2013.
According to JCR-VIS, high capacity to meet policyholder obligations led by company's sound loss absorption capacity, improvement in claims ratio, healthy investment portfolio with consistent dividend streams, reflects company's sound credit rating.
SEGMENTAL MIX: On the basis of net premiums, motor segment dominates the insurance portfolio with a share of 40 percent, followed by fire and property damage (30 percent), marine, aviation and transport (24 percent) and other insurance business (6 percent).
PERFORMANCE DURING THE QUARTER ENDED MARCH 2014 FU General kicked off 2014 on a heartening note with the bottom line posting a healthy gain of 106 percent. The trend in premiums continued its upward drive, however, rise in claims resulted in the claims ratio (net claims to net premiums) to undergo an increase of 100 bps. Thanks to a check commission and management expenses, the combined ratio of the firm improved by nearly 200 bps to 81 percent. This led the underwriting result to experience a double-digit growth of 33 percent.
A manifold surge in investment income during the period remained the primary driver of overwhelming profitability growth during the quarter. This growth in investment income is attributable to a gain of Rs 55 million recognised during the quarter from sale of non-trading investments. Resultantly, profit after taxation clocked in at Rs 462 million from Rs 224 million in the corresponding period of last year.
INVESTMENT PORTFOLIO: The value of investment portfolio of the company crossed Rs 15 billion mark in March 2014 from Rs 14.7 billion in the corresponding period of last year, and represents 48 percent of the total asset size of the company.
With regards to the break-up of the investment portfolio, 52 percent of the portfolio represents investment in company's associate (EFU Life Assurance), while 27 percent is represented by investment in shares (equities) and 19 percent in mutual funds. The rest is spread across government securities and treasury bills (share of 1 percent each).
The portfolio of the company is more inclined towards equities. Although this bodes well for investment income on account of capital gains and dividend flows: it makes the firm a bit precarious. A balance between equity and fixed income would help in overcoming the concern.
A GLIMPSE OF 2013 2013 was not an exciting year for the firm as the bottom line slid by 11 percent year on year. This is despite of a rise of 14 percent in underwriting results and improvement in net claims ratio by 100 bps. However, decline in investment income and significant upsurge in effective tax rate during the period battered the bottom line.
INDUSTRY OUTLOOK For insurance industry in Pakistan, there are numerous challenges to face. This remains the reason behind the lethargic growth of this sector. According to a study done by Insurance Industry Reforms Committee, sliding retention levels, inflation, insufficient margins, slow economic growth, and insufficient premium collection mechanisms coupled with steep rates on agent balances, are the primary reasons behind the dwindling profitability of insurance companies in Pakistan. To counter these issues, the study has proposed a list of suggestions where increase in paid-up capital over time and rise in retention levels are one of the most important ones.
Further, the industry has not fully capitalised on the technological front. Adopting alternative distribution channels especially the unconventional mechanisms including ATM machines, UBL Omni and Easy Paisa can go a long way in reaching out the rural segment of the population that has remained untapped to a great extent. Moreover, considering that a large portion of the population lives below the poverty line, worming into micro-insurance can help stretch out to the middle-income class groups.
Finally the withdrawal of stay order by Sindh High Court lately has permitted conventional insurers to move to Takaful business. This will enable conventional insurers to increase their market share by extending their wings to people who consider insurance against the principles of Islam.
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EFU General Insurance - Financial Highlights
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Rs (mn) CY12 CY13 1QCY14
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Net premium revenue 6,009 6,341 1,732
Net claims (3,297) (3,406) (877)
Management expenses (1,285) (1,375) (343)
Net commission (748) (788) (176)
Underwriting result 679 772 336
Investment income 851 772 236
Rental income 98 101 28
Profit on deposits 116 113 26
Share of profit of an associate 390 398 91
General& administrative expenses (512) (524) (147)
Profit before taxation 1,615 1,623 558
Profit after taxation 1,566 1,392 462
Net claims to Net premium ratio -55% -54% -51%
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Source: Company accounts
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