TPL Direct Insurance

Incorporated in 2005, TPL Direct Insurance Limited is a subsidiary of TPL Holdings Private Limited. Associate companies of TPL Direct include TPL Trakker, TPL Properties, TPL Security Services, Trakker Energy and TPL Financial Consultancy. The company is involved in auto insurance, home insurance, health and travel insurance. Armed with an asset size of Rs 1.16 billion, the company is also listed on Karachi Stock Exchange having a market capitalisation of Rs 712 million.
PORTFOLIO DIVERSIFICATION Having a strong presence in auto insurance, the company has started diversifying its product ranges with its entry in home and health insurance business. In an effort to expand its footprints in health insurance business, TPL Direct has entered into an arrangement with Tameer MircoFinance Bank to target the low income and middle class groups having little or no access to financial institutions through micro-insurance schemes. As reported in company's director report for 2013, the company is determined to expand its footprints in Punjab region that frames over 30 percent of company's total insurance business.
1Q CY14: REVIEW OF FINANCIAL PERFORMANCE The announcement of 1Q CY14 result of TPL Direct Insurance must have left its stakeholders in a solemn mood as profitability after taxation clocked in at Rs 10 million, reporting a decline of 44 percent when compared to the corresponding period of last year.
Although net premiums continued its upward march rising by 43 percent year on year, burgeoning claims kept a lid on underwriting profits and thus the net profitability. Rise in accidental losses, increase in the incidents of vehicle theft, and the impact of GST on auto parts have been attributed as the key reasons behind hefty claims during the period under review. Consequently, net claims to net premiums ratio shot up considerably to 52 percent from 36 percent in 1Q CY13, while combined ratio (ratio of net claims, expenses and net commission to net premiums) depicted an upsurge of 500 bps. Hence, underwriting profit slid downwards to Rs 26 million (down by four percent). By the same token, claims ratio also inched up a tad by 100 bps to 13 percent.
Considering the volatile nature of insurance claims and rising incidences of vehicle thefts, diversifying the investment portfolio and including dividend yielding stocks in the equity portfolio will bode well for company's profitability in times of distressed profitability.
2013: REVIEW OF FINANCIAL PERFORMANCE During 2013, profitability of the company touched new highs with the bottom line clocking in at Rs 51 million for the first time in the history of TPL Direct Insurance. In percentage terms, the bottom line rose by 19 percent year on year.
Gross premiums of the company rose by 23 percent year on year while net premiums surged by 18 percent year on year. But the growth seems to have taken a breather in 2013 when compared to yesteryears. Perhaps, the decelerating growth numbers in premiums and profitability have prompted the management to explore areas other than auto insurance. But, it should be kept in mind that the recent entry in heath and home insurance business will take some time to show results and volatility in claims and profitability can be expected in forthcoming periods.
With rising premiums, claims ratio also continued to ascend to 43 percent from 41 percent in 2012. Thanks to relatively slow growth in expenses, underwriting profit experienced an improvement of 200 bps, thus wiping out the negative impact of increasing claims ratio. Expense ratio dipped to 35 percent from 39 percent in 2012. Unlike other insurance firms in the industry, income generation from investments remains negligible.
INVESTMENT PORTFOLIO Contrary to the industry wide practice of maintaining a strong equity portfolio to provide comfort to the bottom line, the investment portfolio of TPL's investments is highly skewed towards associates and long-term Pakistan Investment Bonds (PIBs). Equities form not more than three percent of the entire investment portfolio of TPL Direct. Inching up the equity portfolio a little would help the company to cherish moments of handsome profitability. But, it should be kept in mind that heavy inclination towards equities poses a risk to shareholder's funds and thus a balanced portfolio consisting of government securities, mutual funds and equities should be considered.
WHAT'S AHEAD? TPL Direct Insurance's keen focus on persuasive marketing campaigns and investment in technology (call centre and tracking services) will further lend a hand in strengthening company's footprints and will contribute positively towards establishing a more robust clientele which in turn will augur well for company's growth in premiums. Besides, TPL Direct's strategy of entertaining claims in sixty seconds, processing in 45 minutes and settlement of claims losses and theft in a week has attracted significant volumes in auto insurance. As mentioned in the director report of 2013, renewal ratio was recorded at 64 percent in 2013, while the company was able to attract new business that witnessed an upsurge of 20 percent.
In terms of industry prospects, the allowance of Takaful window operations by conventional insurers has opened doors for the industry to expand their outreach further. Development of customised Islamic products is the key to increase market share in this area. Besides, creating awareness and investing in skilled and trained manpower are key areas that should be given particular consideration.

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Profitability Ratios

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                              2008      2009     2010     2011     2012    2013

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Underwriting margin             5%       13%       5%      16%      14%     16%

Net profit margin               1%        1%      -5%       7%       7%      7%

Claims ratio                   29%       29%      43%      38%      41%     43%

Return on assets                1%        0%      -3%       4%       5%      5%

Return on equity                1%        1%      -9%       8%      11%     12%

Expenses ratio                 59%       45%      42%      41%      39%     35%

Combined ratio                 88%       74%      85%      78%      80%     78%

Investment generation ratio     1%       N/A       1%       2%       1%      1%

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Source: BR Research calculation based on company accounts.

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TPL Direct Insurance (Profit & loss account)

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Rs (mn)                              2008      2009     2010     2011     2012    2013  1QCY14

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Net premium revenue                   167       223      331      454      620     733     240

Net claims                           (49)      (65)    (142)    (171)    (254)   (314)   (124)

Expenses                             (96)     (112)    (136)    (163)    (213)   (227)    (62)

Net commission                       (13)      (17)     (35)     (46)     (65)    (78)    (28)

Underwriting results                    9        29       18       74       88     114      26

Investment income                       2       (2)        4        8        6       7       1

Other income                            6        15       15       33       76      67      17

Financial charges                     (1)       (6)      (8)      (5)      (1)     (1)       0

General and administrative expenses  (20)      (26)     (42)     (67)    (107)   (109)    (30)

Profit/(Loss) before tax              (4)        10     (13)       43       62      78      14

Taxation                                6       (8)      (5)     (13)     (19)    (27)     (4)

Profit/(Loss) after tax                 2         2     (18)       30       43      51      10

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