Jubilee Life Insurance Company Limited

As Jubilee Life (PSX:JLICL) and EFU Life battle out for the top spot in private sector life insurance space, there is a clear winner when it comes to the speed of business expansion. The former has been the fastest growing firm in its already rapidly expanding sector in recent years and has come from a long way behind to overtake rival EFUL in terms of net premiums in 2014.
Jubilee Life, incorporated in 1995, is among the first few private sector entrants into the life business. In early 1970s, the government nationalized all life insurers and merged them into one state owned entity - State Life. Over the years, it grew so big that even when the government lifted the ban on the private sector to operate in life insurance space in 1992, it didn't attract a lot of competition. EFU Life was the first enterer, kicking off operations in 1992.
Insurance penetration rates have been dismal in Pakistan - under one percent - as compared to regional countries. That said, with the development of new distribution channels and products, and the commencement of window Takaful operations by mainstream companies, insurance is set to become more popular.
PERFORMANCE IN RECENT YEARS Jubilee has seen its core business expand steeply in recent years. The firm collected premiums (net of reinsurance) worth Rs 21.8 billion in the calendar year 2014. This compares Rs 5.8 billion of premiums in 2010 - implying a CAGR of 40 percent. In the same period, other private sector life insurance players (collectively) have seen their premiums grow 25 percent per annum.
Individual life products have been the revenue engine for Jubilee; in CY14, it accounted for 87 percent of the premiums. Gross premiums from accidental and health insurance rallied 43 percent in the period to Rs 1.6 billion - making it the second biggest category for the firm, although still a fraction of Rs 18.8 billion individual life unit-linked.
Monitoring policyholders' claims are very important for an insurer. In the past half decade, claims ratio (claim as a percentage of net premiums) has been downward volatile. From 30.5 percent in 2010, the ratio dropped to 24.1 percent in 2014. It dropped to as low as 19.6 percent in CY14.
Investment income is another major part of an insurer's books that remains volatile. Interest rates and stock market performance are of course key determinants. In 2014, the firm's investment income was 28.7 percent of its net premiums, compared to a nadir of 16.2 percent in 2011. With soaring revenue and volatile yet up trending investment income and claims, Jubilee's profitability has impressed investors lately. From Rs 147 million in 2010, after-tax profits grew to 1,361 million in 2014 - a CAGR of nearly 75 percent. Profit, as a ratio of net premiums, has increased from 2.7 percent to 6.5 percent in the same period.
PERFORMANCE IN CY15 With all new and conventional distribution channels working in full flow, Jubilee Life continued with its steep top line growth trajectory in the first nine months of 2015. The firm saw its net premiums rally 38 percent in the period to Rs 20.1 billion. Investment income also saw a sizeable of 36 percent growth, however falling short of the 2010-14 average of 47 percent.
Claims came in at Rs 5.1 billion - growing 19 percent year-on-year compared to a five year moving average of 32 percent. Growth in bottom line did not keep with historical average as well, coming at 19 percent in 9MCY15. The highlight, or the achievement for CY15 for Jubilee (and its peers) was getting the SECP nod for window Takaful operations. Conventional insurers will now compete in this new, high growth avenue which boasts solid potential in the coming years in an industry troubled with low penetration rates.
Shares of Jubilee Life have been reflective of the company's performance in prior years. The stock, despite being very thinly traded, rallied from sub-Rs 100 in mid-2013 to over Rs 500 in the latter half of 2015. Currently JLICL trades for a little under Rs 500 a share.
OUTLOOK By the nature of its business, life insurance is much more reliant on the success and penetration of its distribution channels, as compared to non-life business which depends heavily on economic growth. A rising shift from conventional agent-based selling structure to channels like bancassurance has boosted growth potential for life insurance firms and is set to continue.
Besides, the biggest driver in the coming years can be a move towards Shariah-compliant products which could push insurance penetration rates upwards. Takaful has massive potential for life insurers. EFU Life CEO, Taher Sachak told BR Research that he expects the segment to bring in 15-20 percent of the business by 2020. National Health program can be another driver for the industry. State Life won the first contract from the government worth Rs 45 billion. However, private sector players are expected to get some share of this pie in 2016.

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Jubilee Life Insurance

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Rs mn                       9MCY15        9MCY14           YoY

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Net premium                 20,137        14,631           38%

Net investment income        4,588        3,369            36%

Net claims                   5,129        4,295            19%

Profit after tax             1,026          860            19%

Claims/premium               25.5%        29.4%  Down (better)

                                                       390 BPS

Investment income/premium    22.8%        23.0%    Down 20 BPS

PAT/premium                   5.1%         5.9%    Down 80 BPS

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