Incorporated in 2005, TPL Direct Insurance Limited is a subsidiary of TPL Holdings Private Limited. Associate companies of TPL Direct include TPL Trakker, TPL Properties, TPL Security Services, Trakker Energy and TPL Financial Consultancy. The company is involved in auto insurance, home insurance, health and travel insurance. Armed with an asset size of Rs 1.16 billion, the company is also listed on Karachi Stock Exchange having a market capitalisation of Rs 712 million.
Although net premiums continued its upward march rising by 43 percent year on year, burgeoning claims kept a lid on underwriting profits and thus the net profitability. Rise in accidental losses, increase in the incidents of vehicle theft, and the impact of GST on auto parts have been attributed as the key reasons behind hefty claims during the period under review. Consequently, net claims to net premiums ratio shot up considerably to 52 percent from 36 percent in 1Q CY13, while combined ratio (ratio of net claims, expenses and net commission to net premiums) depicted an upsurge of 500 bps. Hence, underwriting profit slid downwards to Rs 26 million (down by four percent). By the same token, claims ratio also inched up a tad by 100 bps to 13 percent.
Considering the volatile nature of insurance claims and rising incidences of vehicle thefts, diversifying the investment portfolio and including dividend yielding stocks in the equity portfolio will bode well for company's profitability in times of distressed profitability.
Gross premiums of the company rose by 23 percent year on year while net premiums surged by 18 percent year on year. But the growth seems to have taken a breather in 2013 when compared to yesteryears. Perhaps, the decelerating growth numbers in premiums and profitability have prompted the management to explore areas other than auto insurance. But, it should be kept in mind that the recent entry in heath and home insurance business will take some time to show results and volatility in claims and profitability can be expected in forthcoming periods.
With rising premiums, claims ratio also continued to ascend to 43 percent from 41 percent in 2012. Thanks to relatively slow growth in expenses, underwriting profit experienced an improvement of 200 bps, thus wiping out the negative impact of increasing claims ratio. Expense ratio dipped to 35 percent from 39 percent in 2012. Unlike other insurance firms in the industry, income generation from investments remains negligible.
In terms of industry prospects, the allowance of Takaful window operations by conventional insurers has opened doors for the industry to expand their outreach further. Development of customised Islamic products is the key to increase market share in this area. Besides, creating awareness and investing in skilled and trained manpower are key areas that should be given particular consideration.
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Profitability Ratios
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2008 2009 2010 2011 2012 2013
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Underwriting margin 5% 13% 5% 16% 14% 16%
Net profit margin 1% 1% -5% 7% 7% 7%
Claims ratio 29% 29% 43% 38% 41% 43%
Return on assets 1% 0% -3% 4% 5% 5%
Return on equity 1% 1% -9% 8% 11% 12%
Expenses ratio 59% 45% 42% 41% 39% 35%
Combined ratio 88% 74% 85% 78% 80% 78%
Investment generation ratio 1% N/A 1% 2% 1% 1%
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Source: BR Research calculation based on company accounts.
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TPL Direct Insurance (Profit & loss account)
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Rs (mn) 2008 2009 2010 2011 2012 2013 1QCY14
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Net premium revenue 167 223 331 454 620 733 240
Net claims (49) (65) (142) (171) (254) (314) (124)
Expenses (96) (112) (136) (163) (213) (227) (62)
Net commission (13) (17) (35) (46) (65) (78) (28)
Underwriting results 9 29 18 74 88 114 26
Investment income 2 (2) 4 8 6 7 1
Other income 6 15 15 33 76 67 17
Financial charges (1) (6) (8) (5) (1) (1) 0
General and administrative expenses (20) (26) (42) (67) (107) (109) (30)
Profit/(Loss) before tax (4) 10 (13) 43 62 78 14
Taxation 6 (8) (5) (13) (19) (27) (4)
Profit/(Loss) after tax 2 2 (18) 30 43 51 10
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