Formerly called the "Pakistan Insurance Corporation", PRCL is the only professional reinsurance organization operating in Pakistan. The principal business of the company is provision of insurance and reinsurance services in all classes except life. The organization became a company in 2001.
Measures taken to convert into a commercial concern, include increase in paid-up capital requirements from Rs 0.54 billion to Rs 3 billion and increase in authorized capital from Rs 4 billion to Rs 25 billion. This is to strengthen the equity so that the company can expand both at home and abroad. From 1st January 2005, _compulsory cessation has been removed. Now, PRCL can select which organization it can provide reinsurance to and is not bound to provide for poor performing companies.
RECENT PERFORMANCE 1Q09
===================================================================
COMPANY SNAPSHOT
===================================================================
Name of company PAKISTAN REINSURANCE COMPANY LIMITED
Nature of Business Insurance
Ticker PAKRI
Net Premium CY '07 Rs 1,693,082,718
Net Premium CY '08 Rs 1,895,574,584
Share price (avg.) Rs 39/ share
Market Capitalization 11,700,000,000
===================================================================
==================================================================
RECENT PERFORMANCE
==================================================================
1Q 08 1Q 09 ?
==================================================================
Revenue Account
==================================================================
Gross Premium 837,000,000 1,131,000,000 35.31%
Net Premiums Revenue 486,718,123 485,690,828 -0.21%
Net Claims 284,555,932 228,751,741 -19.61%
Expenses 34,476,583 41,650,968 20.81%
Net commission 114,834,665 130,115,834 13.31%
Underwriting Result 52,850,943 85,172,285 61.16%
Investment income 157,683,046 118,154,355 -25.07%
Rental income 9,590,737 13,529,587 41.07%
Exchange loss/ gain 1,256,845 11,882,757 845.44%
Other income 2,822,321 826,136 -70.73%
General & admin expenses -7,985,409 -4,572,128 -42.74%
Impairment in value
of investments 0 -562,469,912 -
Profit before tax 216,218,483 -337,476,920 -256.08%
Tax -47,536,000 -73,720,030 55.08%
Profit after tax 168,682,483 -411,196,950 -343.77%
EPS 0.56 -1.37 -344.64%
==================================================================
The operating performance of the company has gone downhill in the first quarter of CY09. The gross premium was Rs 1,131 million (1QCY08: Rs 837 million), depicting an increase of 35.31%. However, the net premium revenue is Rs 486 million (1QCY08: Rs 487 million) resulting in a decline of 0.21%. The net claims were much lower at Rs 229 million (1QCY08: Rs 285 million) showing a decline of 19.61%. The expenses and commission have increased sharply by 20.81% and 13.31% respectively. The underwriting result hence showed an increase of 61.16%.
The composition of net premium reveals that treaty makes up the major 61% of the pie. Fire and engineering are the other two popular policies. The composition of underwriting result shows that fire insurance has mainly contributed to the profits (39%) by incurring less claims (claims ratio is -81.46%) and expenses. Treaty has the highest claims ratio at 100.07%, explaining the 38% loss from _this policy. The investment income has shown a decline by 25.07% compared to 1QCY08.
The rental income has increased by 41.07% from the same period in 2008. The exchange gain recorded a huge increase of 854.44%. Other income and general/administrative expenses have declined by 70.73% and 42.74% respectively. The provision of worker welfare fund was not collected. Also the company recorded massive impairment in investments amounting to Rs 562 million. This is the major contributor to loss before and after tax. This is a temporary phase and the buildup in gross premium shows that the company will soon recover from the unprofitable phase.
GROSS PREMIUM VS NET PREMIUM
=======================================================
(Rupees in Millions) 2007 2008
=======================================================
Gross Premium 4,750 4,555
Reinsurance ceded (2,929) (2704)
Net Retention 1,821 1,851
Premium Reserve (128) 45
Net Premium 1,693 1,896
=======================================================
The gross premium stands at Rs 4,550 billion at the end of CY08 - drop of 4.10% vis-a-vis last year. (CY07: Rs 4,750 billion), which is due to lower facultative business in fire and engineering while other areas performed reasonably good. The CAGR (CY03: CY08) of the gross premium has declined by 0.51%. The net premium revenue has increased by 11.96% and the CAGR (CY03: CY08) has been 4.60%. The net premium has shown a y-o-y increase because net retention has improved and premium reserves were favourable.
OPERATING PERFORMANCE
The underwriting profit/net premium has decreased from 12.28 in CY07 to 10.87 in CY08 due to a decline in underwriting result by 0.87% and increase in net premium revenue by 11.96%. Treaty makes up the largest portion of underwriting profit - 40%. The underwriting profit/ gross premium has increased from 4.38 in CY07 to 4.53 in CY08, primarily due to a decline in gross premium by 4.10% on a y-o-y basis. The claims ratio declined from 55% to 51% on a y-o-y basis which will positively impact underwriting result.
INVESTMENT RETURNS
The investment income/net premium has decreased from 217.91 in CY07 to 44.65 in CY08 while investment income/investment assets have declined from 57.54 in CY07 to 15.50 in CY08 due to a decline in the investment income by 77.06% on a y-o-y basis. The major decline was seen in available for sale investments - 99.95%. The decline in return on Government Securities, income on treasury bills, and dividend income were by 23.84%, 10.10% and 12.49% respectively. Return on other fixed income securities and deposits increased substantially by 439.34% but could not contribute to increase in investment income. Also the decline in amortization (49.65%) on PIBs and expenses (46.42%) could not have a favorable impact on the investment income. The investment assets show a decrease of 13.89% principally due to sale of all treasury bills and decline in PIBs.
EXPENSE ANALYSIS
The loss ratio has decreased from 55.01 in CY07 to 50.79 in CY08 while the expense ratio has increased from 9.09 in CY07 to 13.19 in CY08. The combined ratio has hence decreased from 64.10 in CY07 to 63.98 in CY08. The reinsurance expense/net premium has declined from 180.55 in CY07 to 140.30 in CY08. PAT/Net Premium has decreased from 78.43 in CY07 to 19.46 in CY08 as PAT has declined by 41.62% and net premium has increased by 11.96% on a y-o-y basis.
MARKET VALUE RATIOS
The EPS has drastically declined from Rs 12.42/share in CY07 to Rs 2.95/share in CY08. This is due to decline in profitability (PBT declined by 76.21%; PAT declined by 41.62%). Dividends were not given out in CY07 while in CY08 the cash dividend was Rs 2.50/share. The average price per share as on 12th June 2008 was Rs 39/share after staying above Rs 150/share in May 2008. However the share price has recovered and shows that investor confidence is returning due to improved macroeconomic performance. The reforms show that the company's performance will further strengthen in years to come.
FUTURE OUTLOOK
PRCL is compelled to accept 35% of reinsurance business from the general insurance companies operating in Pakistan to avoid premium outflows out of the country. PRCL is also collaborating with international entities through ECO (Economic Cooperation Organization) and FAIR (Federation of Afro-Asian Insurer and Re-insurer) to avoid outflow of foreign exchange and improve the performance of insurance sector in Pakistan. The company has launched a reinsurance management system on 1st April 2009 that will improve its monitoring capabilities but will not contribute to operational efficiency.
A number of reforms were implemented as a consequence of the Insurance Policy 2007 that aimed reforms at a similar pace as the banking sector. The insurance sector was given tax incentives in the Federal Budget 2008-09:
* Taxable income to be determined after deduction of insurance premium
* Capital element of annuity receipts to be exempted from tax
This new policy also aimed at covering four new areas: crop insurance, insurance against terrorism, insurance against earthquake and micro-insurance. These areas are still largely untapped and provide new opportunities for PRCL.
With the upcoming sector of Islamic insurance called Takaful, PRCL may decide to further diversify its offerings of products as well as its customer base by pursuing Takaful as a separate class of insurance. This is another step that would enable the company to further strengthen its position in the competitive arena. Moreover, the recently introduced crop insurance could be tapped as a potential avenue of profitability and contribution towards the economic development of the country.
=================================================================================================
PAKISTAN REINSURANCE COMPANY LIMITED-KEY FINANCIAL DATA
=================================================================================================
Earnings CY'03 CY'04 CY'05 CY'06 CY'07 CY'08
=================================================================================================
Rupees in 000s
-------------------------------------------------------------------------------------------------
Gross Premium 4,697,000 5,241,438 4,159,567 4,499,166 4,750,000 4,555,120
Net Premium Revenue 1,447,479 2,289,349 2,004,643 1,415,505 1,693,083 1,895,575
Total Claims Incurred 1,011,270 1,931,052 1,677,201 776,710 931,289 962,692
Underwriting Expenses 359,919 924,012 516,812 513,755 153,960 250,091
Underwriting Result 76,290 51,112 391,436 125,041 207,951 206,136
Investment Income 332,811 360,525 464,695 771,733 3,689,377 846,394
Profit Before Tax 366,296 390,842 782,386 783,044 3,725,254 886,225
Profit After Tax 297,296 325,535 594,427 671,844 3,781,099 2,207,325
-------------------------------------------------------------------------------------------------
Balance Sheet CY'03 CY'04 CY'05 CY'06 CY'07 CY'08
-------------------------------------------------------------------------------------------------
Rupees in 000s
-------------------------------------------------------------------------------------------------
Paid up capital 450,000 450,000 450,000 450,000 540,000 3,000,000
Equity 1,543,568 1,756,603 2,238,531 2,730,374 6,379,519 7,265,744
Investments (Book Value) 1,885,976 2,719,944 2,872,640 3,588,323 6,412,290 5,458,935
Cash & Bank balances 549,610 314,794 271,389 209,984 1,021,124 2,836,632
Total Assets 6,225,007 6,613,612 5,633,585 6,464,289 11,497,050 12,528,459
Total Liabilities 4,681,439 4,857,010 3,395,055 3,733,915 5,117,531 5,262,715
-------------------------------------------------------------------------------------------------
Operating Performance (%) CY'03 CY'04 CY'05 CY'06 CY'07 CY'08
-------------------------------------------------------------------------------------------------
Underwriting Profit / Net Premium 5.27 2.23 19.53 8.83 12.28 10.87
Underwriting Profit / Gross Premium 1.62 0.98 9.41 2.78 4.38 4.53
Loss Ratio 69.86 84.35 83.67 54.87 55.01 50.79
Expense Ratio 24.87 40.36 25.78 36.29 9.09 13.19
Combined ratio 94.73 124.71 109.45 91.17 64.10 63.98
Return on Assets 4.78 4.92 10.55 10.39 32.89 17.62
Reinsurance Expense/Net Premiums 224.50 128.95 107.50 217.85 180.55 140.30
-------------------------------------------------------------------------------------------------
DEBT MANAGEMENT CY'03 CY'04 CY'05 CY'06 CY'07 CY'08
-------------------------------------------------------------------------------------------------
Debt/Assets Ratio 75.20 73.44 60.26 57.76 44.51 42.01
Debt/Equity 3.03 2.77 1.52 1.37 0.80 0.72
-------------------------------------------------------------------------------------------------
Capital Adequacy CY'03 CY'04 CY'05 CY'06 CY'07 CY'08
-------------------------------------------------------------------------------------------------
Paid-up Capital / Total Equity 0.29 0.26 0.20 0.16 0.08 0.41
Equity/Total Assets 0.25 0.27 0.40 0.42 0.55 0.58
-------------------------------------------------------------------------------------------------
Profitability Ratios CY'03 CY'04 CY'05 CY'06 CY'07 CY'08
-------------------------------------------------------------------------------------------------
Investment income/Net premiums 22.99 15.75 23.18 54.52 217.91 44.65
Investment income/Investment assets 17.65 13.25 16.18 21.51 57.54 15.50
Profit After tax/Net Premium 7.80 7.46 18.81 17.40 78.43 19.46
-------------------------------------------------------------------------------------------------
Market Value Ratios CY'03 CY'04 CY'05 CY'06 CY'07 CY'08
-------------------------------------------------------------------------------------------------
Earnings Per Share 6.61 7.23 13.21 14.93 12.42 2.95
Dividends per share 1.50 2.48 2.54 3.98 0.00 2.50
=================================================================================================