Even after decades of existence, the life insurance sector appears to be a nascent industry. Insurance penetration rates for Pakistan are lowest in the region - 0.5 percent of the GDP compared to India's 2.6 percent. A long period of monopoly from early 70s to early 90s was harmful for the sector's growth as it still remains miniscule.
However, the past half decade has seen life insurers up their game, particularly the private sector firms. State Life, which is soon to be privatised itself, is still a beast accounting for bulk of the sector's premiums. Its market share, however, has come down from 73 percent (of premiums) in 2010 to 62 percent in 2014. EFU Life Assurance (PSX:EFUL) and Jubilee Life Insurance have depicted steep growth in insurance underwriting over the years to take the share away from State Life.
Company overview
EFU Life commenced business in late 1992, becoming the first private sector life insurance company after the government gave a green light to private life insurance operators in 1990. In early 1993, EFU Life started writing group life insurance business, and individual insurance operations a year later.
Now, with over two decades passed, the firm has more than 175 branches and a dedicated sales force of 4,000; it also offers insurance products through other channels like bancassurance. EFU Life has seen a solid double-digit growth in its net premiums in each of the past ten years.
Not only EFUL is the oldest private sector firm in its market, it also has become the first conventional insurer to receive a license for window Takaful operations from SECP earlier this year. Takaful has the potential to be a game changer in Pakistan's insurance industry. The demand for Shariah-compliant products might not be huge at the moment, but they have great prospects in the next five years. EFU Life's CEO Taher G. Sachak believes that Takaful operations will account for 15-20 percent of the firm's business by 2020.
Recent Performance
The firm has seen handsome growth in its underwriting business as well as investment activity over the past few years.
CY15 proved to be a fruitful year for the life insurer. Not only were its numbers impressive, the firm received the license to perform window Takaful operations. In a country with religious hurdles hurting the market for insurers, Takaful is backed to be a game changer in coming years.
Another milestone that EFUL achieved in the last calendar year pertains to its investment front. The company's fund value reached Rs75 billion mark in CY15, making it one of the top-three investment fund managers in the country.
For an insurer, income from investments constitutes a significant chunk of its revenue. For EFU Life, growth in its investment income has actually outpaced that of core insurance business in recent years, owing to the upbeat performance of Pakistan Stock Exchange (formerly KSE); the firm's investment income CAGR is 33 percent in the past five years (till 2014).
In CY15, this trend was reversed at EFU Life. Courtesy of a solid show in its core business, and a volatile market putting downward pressure on investment income, the former's growth outpaced that of the latter's.
Profitability, in comparison hasn't been the strongest suit for EFU Life courtesy of a lull period between CY12-CY14 that saw the bottom line stagnate. In the past five years, the firm's after-tax profits have expanded at a CAGR of 32 percent, lower than that of the industry average. In CY15 though, EFUL saw a solid 55 percent rise in the profits to Rs1.48 billion.
Investments constitute the bulk of an insurer's balance sheet. For EFU Life, investments have grown at an average pace of 30 percent to Rs55.5 billion (as of CY14). That is 82 percent of the total assets. The firm had around Rs7.7 billion in cash and bank balances (as of CY14).
Stock price and outlook
EFUL stock has seen plenty of upside lately, backed by strong results. It has outpaced the benchmark index in CY14 and CY15 and has finished in the green each year since (at least) 2011. The shares currently exchange hands for Rs210 apiece. In early 2014, the share price was below Rs100.
The arrival of Takaful to the mix has opened a new avenue of growth for the insurance industry. It is only the beginning of Shariah compliant products in the insurance market; in a couple of years' time they will start contributing in a meaningful way to the company's top line and add to its growth. EFU Life looks well positioned to make the best of this opportunity, given its experienced management and industry-leadership position. New distribution channels also make the picture rosier for the likes of EFUL.
Copyright Business Recorder, 2016