"EFU 75 Years of Caring & Sharing" is the emblem decorating its annual report 2006 as the company is celebrating its Platinum Jubilee. Reaching this milestone is a significant accomplishment in the life of any organization.
The second half of the message aptly reads: "However, the real importance of the occasion is not in celebrating the past. Instead, we enter our 75th year energized for the future as even a better trustee, a better employer, a better partner and a better citizen. The knowledge, experience, and strength that we have built over 75 years is invaluable, and we will continue growing and expanding, as always in the spirit of caring and sharing". Congratulations.
EFU General Insurance Limited (EFU) was incorporated as a public limited company on September 2, 1932 in the city of Calcutta (now Kolkata). EFU shares are quoted on Karachi and Lahore Stock Exchanges.
The company is engaged in general insurance business comprising of fire & property, marine, motor, etc through a network of 57 branches (including KEPZ Branch) in Pakistan and one branch in Jeddah, Saudi Arabia. The company's Registered Office is located in Peshawar while its principal place of business is in Karachi. Number of company employees at the end of 2006 was 1,238 (2005: 1,195 employees). JCR-VIS has improved the company's Financial Strength Rating to "AA" (Double A) and outlook to "Stable".
The authorised capital of EFU is Rs 1,500 million, comprising 150 million shares of Rs 10 each. As on December 31, 2006 the paid up capital was Rs 500 million, which was held by 1,219 shareholders, of which 1,138 individuals held over 31% shares.
Associated companies such as EFU Life Assurance Limited, JS Bank Limited and Trustees of EFU Staff Provident and Gratuity Funds held nearly 8% shares. CEO, Directors, their spouse and minor children held nearly 19% voting interest while Ebrahim Alibhai Foundation holds over 12% shares. A foreign investor has 6.27% voting interest while the Administrator of Abandoned Properties held 5.43% shares. The rest of the shares were with by joint stock companies including banks and DFIs.
The Auditors in their Report to the Members, before expressing an opinion, make an exception for the financial effect of the matters referred to in the preceding paragraph, which reads: "As more fully explained in note 5.9 to the financial statements the Company's investments in an associated company have been accounted for at cost. International Accounting Standard 28 'Investment in Associates' requires that such investment be valued using Equity Method. Had the equity method been used for valuation, the value of investments and effect on profit as on December 31, 2006 would have been higher by Rs 184 million (2005: 113 million) and Rs 71 million (2005: Rs 52 million) respectively". The company's rationale for the method used, discussed in note 5.9 sums up: "The Company considers that accounting for these investments at a value above cost would result in complications similar to those related to the adoption of International Accounting Standard IAS-39 'Financial Instrument- Recognition and Measurement'".
Total assets of EFU increased by 46% to Rs 10,628 million on December 31, 2006 compared to Rs 7,286 million on December 31, 2005. The increases are seen in Investments, Premium Due but Unpaid, Re-insurance Recoveries against Outstanding Claims and Prepayments. Net increase in assets has been largely financed through retention of profits, increase in Provision for Un-earned Premium and Provision for Outstanding Claims.
Investment saw 54% increase to Rs 3,675 million as on December 31, 2006 (2005: Rs 2,387 million). Moreover, EFU has Investment Properties at Rs 289 million as on December 31, 2006 (2005: Rs 307 million). The market value of such land and buildings is estimated Rs 1,017 million (2005: Rs 966 million). Shareholders Equity on December 31, 2006 as percentage of Total Assets was 17% (2005: 15%), which reflects EFU's financial strength.
During the year ended December 31, 2006, EFU has Written Premium of Rs 8.46 billion, showing a growth rate of 27% as compared with the previous year. The net premium revenue for the year however saw 40% increased to Rs 5.4 billion as compared to Rs 3.8 billion in 2005.
As percentage of Net Premium Revenue, Net Claims have increased from 70% in the previous year to 76% in the year 2006. The overall claim ratio in 2006 was high mainly on account of some large losses in Fire and Property Departments. As a result, underwriting profit for the year was 40% lower at Rs 188 million (3% of net premium revenue) compared to Rs 312 million (8% of the net premium revenue) for the previous year.
The company's income from investment, rentals and other income for the year under review was Rs 813 million as compared to Rs 446 million last year manifesting an increase of 82% and due to this the company was able to offset decline in underwriting profits. EFU closed the year with profit after tax at Rs 762 million as compared to Rs 506 million for 2005, an increase of 33%. Due to retention of profits, shareholders equity on December 31, 2006 was 60% higher compared to December 31, 2005. ROE for the year under review declined slightly to 43% compared to 45% for the previous year. ROE is highly satisfactory. The Board has recommended cash dividend at 30% (2005: 30%) and bonus issue at 100% (2005: 66.67%). Performance statistics are given below.
According to the Directors' Report, the management's short term and long term objectives as in the past will continue to strongly focus on providing the best service to its clients and intends to keep providing the risk management services at the forefront.
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Performance Statistics (Audited)
(Rs Million)
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Balance Sheet (as on December 31) 2006 2005
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Cash, bank and deposits: 1,136 1,193
Investments: 3,675 2,387
Investment properties: 289 307
Premium due but unpaid: 1,293 995
Amounts due from re-insurers: 226 85
Other current assets: 3,665 2,065
Total Current Assets: 10,284 7,032
Total Fixed Assets: 344 254
Total assets: 10,628 7,286
Paid up capital: 500 300
Reserves & Retained earnings: 1,291 819
Shareholders Equity: 1,791 1,119
Underwriting provisions: 7,970 5,369
Total Creditors, accruals: 867 798
Total Liabilities: 8,837 6,167
Total Liabilities & Equity: 10,628 7,286
Ratios: 2,006 2,005
Cash and bank/Total Assets: 11% 16%
Investments/Total Assets: 35% 33%
Premium due but unpaid/Total Assets: 12% 14%
Total Current Assets/Total Assets: 97% 97%
Fixed Assets/Total Assets: 3% 3%
Shareholders Equity/Total Assets: 17% 15%
Underwriting Provisions/Total Assets: 75% 74%
Total Liabilities/Total Assets: 83% 85%
Book Value (Per Rs 10/- share)- Rs: 35.82 37.30
Quoted Price (19-7-07)- Rs: 239.20 -
Quoted Price/Book Value Ratio - X: 6.68 -
Revenue Account (Y end December 31) 2006 2005
Net premium revenue: 5,418 3,862
Net claims: 4,132 2,694
Expenses, net commissions, etc: 1,098 856
Total, claims, expenses, commission: 5,230 3,550
Underwriting result: 188 312
Investment income: 696 356
Other income: 117 90
Total Income: 1,001 758
Total Gen and admn Expenses: 144 112
Profit before tax: 857 646
Provision for Taxation: 95 140
Profit after tax: 762 506
Ratios: 2006 2005
Underwriting result/net premium revenue: 3% 8%
Underwriting result/Total Assets: 2% 4%
Underwriting result/Total income: 19% 41%
Investment income/Total Income: 70% 47%
Profit after taxation/Total Assets: 7% 7%
Profit after tax/Total Equity: 43% 45%
EPS (Year end capital)- Rs: 15.24 16.87
Price Earning Ratio- Times: 15.70 -
Cash Flow Summary 2006 2005
Total cash flow from Operating activities: 609 938
Total cash flow from Investing activities: -578 -549
Total cash flow from Financing activities: -88 -62
Net cash from All activities: -57 327
Cash at beginning of period: 1,193 866
Cash at end of period: 1,136 1,193
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