EFU Life Assurance Limited (EFU Life) was incorporated as a public limited life insurance company on August 9, 1992 after the Government of Pakistan had opened up life insurance business to the private sector. The company started operation from November 8, 1992.
In 2007, the company completed its 75 years in business. Company is engaged in life insurance business carrying on ordinary life business, pension fund, accident and health businesses and has established following statutory funds, as required by the Insurance Ordinance, 2000. The company has discontinued pension business and accordingly no new business has been written under this fund.
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Rupees in thousands
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Recent Performance 3Q '07 3Q '08 % change
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Gross Premium 3240816 5432538 67.63%
Net Premium Revenue -1861717 5102533 -374.08%
Total Claims Incurred 428120 1250326 192.05%
Underwriting expenses 1143439 1782413 55.88%
Underwriting Result 1530540 2686737 75.54%
Investment Income 119568 -1768199 -1578.82%
Profit Before Tax 397181 337575 -15.01%
Profit After Tax 292181 222575 -23.82%
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Despite the global economic slowdown and political uncertainty in the country, the performance of the company is not affected. The gross premium has increased by 67.63% from Rs 3.2 billion to Rs 5.4 billion. There has been a steady growth in life assurance premiums. The two distribution channels of bancassurance and sales force have contributed equally to the earnings. New individual life regular premium income crossed the billion rupee mark and stood at Rs 1.39 billion at the end of the first nine months of the year compared to Rs 778 million for the same period last year, showing an impressive growth of 79%. Renewal premium income also showed a growth consistent with the previous two quarters of the year and increased by 37% for the same period. Group Benefits business continued its significant contribution to the overall business and also crossed the billion-rupee mark. Group premium increased to Rs 1.3 billion as on 30 September 2008 compared to Rs 884 million at the end of first nine months of 2007, an increase of 50%.
The company made a before tax profit of Rs 337 million for the first nine months of this year compared to Rs 397 million for the corresponding period last year. The reduction of 15% in profit was mainly due to the reduced capital gains on the stock portfolio as compared to last year as well as the new business strain on individual life business. There has been a substantial decline in investment income mainly due to global and domestic economic uncertainties. The investments were also in excess of the prescribed limit so they were offloaded.
PROFITABILITYThe investment income to net premium ratio showed an upward trend up-till CY07. The ratio substantially declined in 3Q08. As mentioned this was due to reduction in the portfolio prices of investments. This is also the reason for the drastic decline in the other ratio investment income to investment assets.
The profitability has turned in negative in 3Q08 despite showing a consistent positive trend. The investment income has declined by 158.4% in the 9 months of 2008, against an increase of 550.37% in FY07. In FY07, new sales branches were opened that has widened the distribution networks for the firm. The improvement of sales force resulted in greater productivity.
Group benefits business achieved excellent growth of 49% with gross premium income of Rs 1.383 billion in CY07 against Rs 926 million in FY06. The company's strategy of focusing on the traditional "employer-employee" groups and diversification into the "bank customer" groups has worked out well and resulted in sustainable growth as well as profitability for this line of business.
Group benefits business by its very nature is competitive. However the improved profitability of the business every year reinforces the sound underwriting and pricing methodology of the company. The loss ratio has progressively declined from 36.74% in FY04 to 25.88% in CY07.
This is because the increase in total claims incurred was less than the total increase in the net premium revenue. The net premium revenue in CY07 has increased by 45.66% while the total claims incurred registered an increase of 20.54%. Over the four-year period the increase in total claims incurred was 97.89% while the increase in the net premium revenue was by 196.69%.
The expense ratio has steadily increased from 27.11% in CY04 to 35.43% in CY07. This is because the underwriting expenses increased by a significant 70.60% whereas the net premium revenue grew by 45.66% in CY07. Over the four-year period, the underwriting expenses have grown by 282.29% while the net premium revenue has increased by 196.69%.
The combined ratio, which is a sum of both the expense and loss ratios, has registered a nominal decline over the four-year period. It declined from 63.85% in CY04 to 61.31% in CY07. The reinsurance expense to net premiums has seen a general decline from 9.53% in CY04 to 8.72% in CY07 with a peak of 10.73% in CY05. The return on assets has increased from 3.31% in CY04 to 9.07% in CY07.
This is due to the increase in total assets by 201.87% while the net income has increased by 58.05% over the four-year period. There was a drastic increase in this ratio from 3.06% in CY06 to 9.07% in CY07. The profit after tax increased by 411.63% while the assets increased by 72.92%.
DEBT MANAGEMENTThe debt management ratios show an optimistic picture. The ratios have declined signalling that the debt burden of the company has reduced. The debt to assets ratio has decreased from 9.43% in CY04 to 6.78% in CY07. The debt to equity ratio has declined from 101.97% in CY04 to 67.48% in CY07. The debt has increased by 127.95% while the equity and assets have increased by 271.45% and 201.87% respectively over the four-year period.
The statutory funds have registered an increase from Rs 6.3 billion to Rs 11.13 billion - an increase of 76.26%. The investments made a significant chunk of the assets as it made 88.30% of the assets in CY07 and these also registered a huge increase on a year-on-year basis by 78.86%.
The equity to total assets has increased from 0.09 in CY04 to 0.10 in CY07. The paid up capital to total equity has decreased from 0.45 to 0.39. The paid-up capital to equity has risen from Rs 165 million in CY04 to Rs 500 million in CY07 - an increase of 66.67% while the equity has increased 75%. The assets increased by 201.87% in the four-year period against an increase in equity by 271.45%. As the investments exceeded the required level, Rs 599.615 million were transferred from the shareholders' equity to the statutory fund.
INVESTOR EXPECTATIONSThe dividends per share show an upward trend. It increased steadily but later declined. The earnings per share have increased from Rs 6.71/share in CY04 to Rs 7.87/share in CY07 but the increase has remained constant over the last two years. For the CY07 the appropriations in profit are such that the dividend will be given @ Rs 3 per share but these have not been considered this year and will be taken into account in the year of declaration.
The share price of EFU Life Assurance has increased over the time. From a low of Rs 251 in CY06 to a high Rs 828 in February 2008, the stock showed good performance. Thereafter, the price has declined owing mainly due to the recessionary pressures encountered in the third quarter of the current fiscal year.
FUTURE OUTLOOKDuring the year, the company has incorporated its subsidiary - EFU Family Takaful Limited. Focusing the needs of its clients and bancassurance partners, EFU Life continued to design and launch new products during the year.
Four new products focusing on protection, children's education and marriage, savings and retirement were launched. Such innovation will set the path for future success of the company. The company has kept a reasonable record in the uncertain macroeconomic circumstances that face the country. With continued innovation and reacting to change the company can surely keep the success of the company afloat.
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EFU LIFE INSURANCE-KEY FINANCIAL DATA
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EARNINGS FY'04 FY'05 FY'06 FY'07 3Q'08
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RUPEES IN THOUSAND
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Gross Premium 1883699 2500098 3338078 4817874 5432538
Net Premium Revenue 1719822 2257827 3042316 4431546 5102533
Total Claims Incurred 631818 748823 951440 1146866 1250326
Underwriting Expenses 466248 673230 920399 1570230 1782413
Underwriting Result 907027 1267935 1698785 2377138 2686737
Investment Income 301222 861892 465565 3027910 -1768199
Profit Before Tax 214830 296214 337769 1434745 337575
Profit After Tax 140830 195867 235969 1207292 222575
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BALANCE SHEET FY'04 FY'05 FY'06 FY'07 3Q'08
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RUPEES IN THOUSAND
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Paid up capital 165000 210000 300000 500000 750000
Equity 365162 536279 730248 1277925 1356387
Investments (Book Value) 3689747 5156704 6573206 11757140 11619644
Cash & Bank balances 382418 455453 683275 949466 528839
Total Assets 4259061 5968374 7700228 13315250 12856616
Total Liabilities 401556 514536 653144 902457 915339
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OPERATING PERFORMANCE FY'04 FY'05 FY'06 FY'07 3Q'08
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Underwriting Profit / Net Premium % 52.74 56.16 55.84 53.64 52.65
Underwriting Profit / Gross Premium % 48.15 50.72 50.89 49.34 49.46
Gross Premium 1883699 2500098 3338078 4817874 5432538
Net Premium Revenue 1719822 2257827 3042316 4431546 5102533
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EXPENSE ANALYSIS (%) FY'04 FY'05 FY'06 FY'07 3Q'08
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Loss Ratio 36.74% 33.17% 31.27% 25.88% 24.50%
Expense Ratio 73.79% 89.91% 96.74% 136.91% 142.56%
Combined ratio 194.54% 188.34% 184.57% 151.39% 150.74%
Return on Assets 33.21% 67.98% 27.41% 127.38% -65.81%
Reinsurance Expense/Net Premiums 71.32% 34.37% 72.55% 47.38% -19.09%
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DEBT MANAGEMENT FY'04 FY'05 FY'06 FY'07 3Q'08
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Debt/Assets Ratio 9.43% 8.62% 8.48% 6.78% 7.12%
Debt/Equity 109.97% 95.95% 89.44% 70.62% 67.48%
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CAPITAL ADEQUACY FY'04 FY'05 FY'06 FY'07 3Q'08
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Paid-up Capital / Total Equity 0.45 0.39 0.41 0.39 0.55
Equity/Total Assets 0.09 0.09 0.09 0.10 0.11
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PROFITABILITY RATIOS FY'04 FY'05 FY'06 FY'07 3Q'08
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Investment income/Net premiums 17.51 38.17 15.30 68.33 -34.65
Investment income/Investment assets 8.16 16.71 7.08 25.75 -15.22
Investment Income 301222 861892 465565 3027910 -1768199
Profit After tax/Net Premium 8.19 8.68 7.76 27.24 4.36
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MARKET VALUE RATIOS FY'04 FY'05 FY'06 FY'07 3Q'08
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Earnings Per Share 6.71 6.53 7.87 7.87 7.87
Dividends per share 0.91 1.17 1.40 0.84 0.56
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