EFU General Insurance

Formed in 1932, under the leadership of Mr Ghulam Muhammad, EFU General Insurance stands as the leading insurer in the private non-life insurance sector of Pakistan. The company was incorporated with the financial support of Agha Khan III and the Nawab of Mughal. The company is offering insurance servicing in areas of property, marine/aviation, motor and other miscellaneous products.
MARKET SHARE: EFU General holds the largest market share in country's non-life insurance sector. According to the statistics shared by Insurance Association of Pakistan (IAP), the company holds a market share of 26 percent. Jubilee General and Adamjee Insurance stand as the second and third largest companies in this sector.
INVESTMENT PORTFOLIO: EFU General's portfolio composition now holds a higher proportion of government securities. To cash in on the prevailing interest rate scenario, company's fund managers smartly adjusted the portfolio allocation to reap the benefits of hefty yields on sovereign instruments. Based on the financials as of September 2014, the share of government securities in the portfolio stood at 15 percent, which is significantly higher from 1 percent as of December 2013. This was achieved by slashing the share of mutual funds to 4 percent from 16 percent previously.
Equities still hold the largest share of the pie, standing at 80 percent (September 2014). This also takes into account its investment in its associate, ie EFU Life Assurance. This is considered to be on higher side. Given the fluctuating nature of equity markets, a balance between equity and fixed income should be the ideal approach. Besides, a higher inclination towards government bonds and other fixed income instruments to secure a stable income stream is the strategy adopted by many insurers in the industry. Nonetheless, it all depends on individual insurer's risk appetite and return preferences. Yet, one cannot overlook the highly volatile nature of stock market.
CY14 - A STEADY YEAR FOR EFU GENERAL: EFU General concluded the year on a pleasant note with its profitability maintaining the high growth momentum as observed in previous years. In CY14, EFU General flaunted a bottom line growth of nearly twofold.
Though, the bottom line growth did not stem from the top. Top line growth remained modest, inching up a tad by 3 percent year-on-year. Perhaps, the company is more focused on maintaining a quality portfolio than on building its premiums. This is evident as claims have improved. From a claims ratio of 54 percent in the preceding year, it has now dropped to 46 percent, hence leading to a massive 71 percent growth in underwriting profits.
However, it is yet to be seen if the drastic improvement in claims expenses is the outcome of some one-off event or management's constant endeavours to create an efficient claims management process. If it's the later, then improved underwriting profits and healthy bottom line growth would be the outcomes.
Besides, the revisit of its investment portfolio also fared well for the bottom line growth. With the drastic rise in the share of government securities during the period, the firm was able to churn healthy yields on its PIB holdings. Also, the decline in PIB yields towards the end of year is likely to have contributed substantial revaluation gains on firm's high yielding PIB portfolio. Investment ratio surged by a healthy 200bps to 14 percent during the year. As interest rates are expected to slide further, revaluation gains will continue to treat the bottom line well. With this, the company also announced a cash dividend of Rs 5 per share. This is in addition to 10 percent interim dividend paid out by the company during the year.
WAY FORWARD: Subsequent to the settlement of dispute on launch of window takaful operations by conventional insurers last year, EFU General conveyed its plans to jump on the takaful bandwagon. Though, any progress on the matter is yet to be seen. As for the industry, the sport is not an easy one for insurers operating in Pakistan. Given the general lack of awareness and understanding about insurance products in the society, the list of challenges hurting industry growth is lengthy. Restricted accesses to financial products in far-flung areas, limited outreach of insurers, mindset that insurance is against the principles of Islam are one of the crucial industry issues. To some extent, the issue can be addressed if alternative distribution channels are developed. Referring to Insurance Industry Reform Committee (IIRC)'s report on insurance industry's issues and potential areas of growth, distribution mediums such as ATM machines, UBL Omni and Easy Paisa need to be explored.
The evolution of microinsurance regulations together with the allowance of window takaful operations for conventional insurers offers an opportunity for insurers to expand their product lines by targeting diverse market segments. But these developments are likely to bear fruits in the long run.

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EFU General Insurance - Financial Highlights

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Rs (mn)                              CY12        CY13        CY14

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Net premium revenue                 6,009       6,341       6,532

Net claims                        (3,297)     (3,406)     (2,973)

Management expenses               (1,285)     (1,375)     (1,482)

Net commission                      (748)       (788)       (760)

Underwriting result                   679         772       1,317

Investment income                     851         772         915

Share of profit of an association     390         398         404

General& administrative expenses     (512)       (524)      (592)

Profit before taxation              1,615       1,623       2,263

Profit after taxation               1,566       1,392       1,830

Net claims to Net premium ratio       55%         54%         46%

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