NEW JUBILEE INSURANCE - Analysis of Financial Statements Financial Year 2009-1Q Financial Year 2011
Owing to less than targeted economic growth of 2.5% as against 4.5%, higher than expected inflation rate of 16% as against 9.5% and the hefty fiscal deficit valued at 6.5% the non-life insurance industry grew by a meagre 4-5%.
Another important factor of great relevance to NJI's sector of operation is the devastating impact of floods on the various business segments, especially the fire, engineering and crop portfolios. During FY10 the industry saw a wave of premium slashes primarily motivated by the slow growth in premiums, to the extent that in some classes of business the premium charges fell abnormally below the sustainable levels.
RECENT RESULTS (1Q11)
NJI posted a robust growth of 32% in written premium on the back of 41% growth in fire, 18% in marine, 27% in motor, 44% in accident and health and 45% in miscellaneous classes. Company's net premium too has increased by 7%. The company reported an underwriting profit of Rs 54 million which is 17% more than Rs 46 million in the first quarter of 2010. This increase in the underwriting profit was despite an increase in claims and expenses. The investment income has decreased by 9% to Rs 123 million (2010: Rs 135 million) mainly because of lower return on bank deposits and less capital gain realized on sale of securities. The amount with the banks is lower at Rs 413 million as compared to Rs 869 million in the same quarter last year. Receivables are seen to be considerably higher on the premiums side, hitting the liquidity of the company.
PAT was lower at Rs 136 million as compared to Rs 148 million in the 1Q10. NJI reported an EPS of Rs 1.72 as compared to EPS of Rs 1.87 in 1Q11.
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COMPANY' S PERFORMANCE
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2010 2009
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(Rupees in 000)
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Cross Premium 4,285,248 4,030,643
Net premium Revenue 2,451,227 2,297,720
Underwriting Result (64,085} 114,121
Investment Income including
Capital gain and Rent 586,715 673,537
Profit before tax 546,682 771,898
Profit after tax 450,151 656,464
Earning per share of Rs 10 each 5.69 8.30
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Financial performance
The difficult economic circumstances could not pose any hurdle to the growing gross premium revenue of NJI; the gross and net premiums swelled by 6.3% and 6.7% respectively. The impact of the floods however was truly devastating and led the underwriting result to fall to an underwriting loss of Rs 64 million. The fall in the investment income was a function of the lower returns being offered on bank deposits in the ailing economic circumstances as well as the lower levels of realized capital gains.
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SEGMENT GROSS PREMIUM UNDERWRITING
CONTRIBUTION RESULT
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Fire & Property 26% Rs 20 million loss
Marine, Aviation & Transport 12% Rs 20 million profit
Motor 15% Rs 10 million profit
Liability 7% Rs 29 million profit
Accident & Health 10% Rs 59 million loss
Other 30% Rs 41 million loss
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The table shows the snapshot of the performance of the different business classes to the operational results of NJI over FY10. While the fire and property segment was badly hit by the onset of the flood, the marine and aviation segment picked up a robust growth rate of 22%; on the other hand the prudence of the company's use of selective underwriting strategy in the midst of rising car sales became clear when NJI reported an operating profit under this head despite the rising incidence of car theft in 2010. Accident and health continued to be the problem child for the company with its reported loss increasing by an astounding Rs 39 million over the loss of Rs 20 million in 2009 however the company sources remain confident that the state of this business segment would be turned over in 2011 and that NJI would be able to look at this segment as a potential driver of growth and profitability. The bulk of the loss incurred under the Other Insurance category stemmed from the dampening impact of floods on the engineering and crop insurance categories.
Examining the operating performance of NJI provides no source of evidence about the resilience of the company to economic fluctuations; the ratios of underwriting profit to both gross and net premiums have a taken a dip towards the negative side of the axis, whereas the return on assets has declined from a promising 10.23% to almost 6% this year. This collapse of almost half the earlier results can be put in to context by the rising loss ratio and combined ratio of loss and expenses to 102.175% of net premiums. The figures below depict this depressive trend:
As far as the solvency position of the company is concerned the shift to longer maturity investments due to the lower offer rates on money market instruments was aptly reflected in the falling value of the current ratio over the year. Also that the utilization of the assets fell rapidly from an average of 0.63 to 0.56 this year out of which less than one percentage point dip took place in the fixed asset turnover percentage over the period. The dip in liquid assets however was far greater.
The graph below depicts the slip in the debt position of the firm; where on one hand the debt to equity percentage swelled to over 167% eventually raising the gearing position of the firm, the percentage of assets financed by equity correspondingly declined to less than 40%.
The adverse aggregated impacts on the profitability from each of the summarized business segments above are depicted in the figure below. The greatest percentage decline occurred in the investment income to investment asset ratio perhaps due to the portfolio readjustments discussed earlier; also that the post tax profit to net premium fared off as a relatively better indicator in terms of the impact of adverse economic conditions.
For short-term or potentially new investors the attractiveness of NJI stocks took a considerable damage during this year as almost all account heads received a below average standing. With the EPS, DPS and Dividend Yield all falling amidst the desperate attempts of the company to raise the dividend payout ratio the intuitive conclusion would be that investor confidence in the company has been shattered. However, the rising market price at the end of the year tells a completely different story.
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Earnings 2009 2010
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Gross Premium 4,030,646 4285000
Reinsurance Expense 1,618,366 -
Net Premium Revenue 2,297,720 2451227
Total Claims Incurred 1,420,977 1677614
Underwriting Expenses 899,493 -
Underwriting Result 114,121 -64085
Investment Income 452,253 407598
Profit Before Tax 771,898 546682
Tax 115,434 96531
Profit After Tax 656,464 450151
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Balance Sheet
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Paid up capital 659,148 790977
Equity 2,621,006 2873413
Investments (Book Value) 1,753,158 3675759
Cash & Bank balances 2,028,132 974783
Total Assets 6,419,889 7671596
Total Liabilities 3,798,883 4798183
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Operating Performance (%) FY'09 FY'10
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Underwriting Profit / Net Premium 4.97 -2.6144
Underwriting Profit / Gross Premium 2.83 -1.49557
Loss Ratio 61.84 68
Expense Ratio 39.15 34.17464
Combined ratio 100.99 102.1746
Return on Assets 10.23 5.87
Reinsurance Expense/Net Premiums 75.42 -
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Liquidity FY'09 FY'10
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Current Ratio 1.62 1.54
Total Assets turnover 63 56
Fixed Assets Turnover 16.86 17.13
Liquid assets/ total assets (%) 59 61
Equity/ Total assets (%) 41 37
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Debt Management FY'09 FY'10
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Debt/Assets Ratio/ % 59.17 62.54
Debt/Equity 145.00 167.00
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Capital Adequacy FY'09 FY'10
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Paid-up Capital / Total Equity 25.15 27.53
Equity/Total Assets 40.83 37.46
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Profitability Ratios/ % FY'09 FY'10
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Investment income/Net premiums 19.68 16.63
Investment income/Investment assets 25.80 11.09
Profit After tax/Net Premium 28.57 18.36
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Market Value Ratios FY'09 FY'10
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Earnings Per Share 9.96 5.69
Market price/ share (at the end of year 58.24 59.33
Dividends per share 3.00 2.00
Dividend Yield (%) 5.15 3.37
Dividend Payout (%) 30 35
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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