EFU General Insurance Limited

EFU General Insurance Limited (PSX: EFUG) is part of the country's largest insurer group in the country - EFU, which also consists of EFU Life Assurance Limited and Allianz EFU Health Insurance Limited. It was incorporated on September 2, 1932. The non-life insurance company provides a full range of insurance services to both the commercial and individual clients and its product portfolio includes Fire and Property Damage, Marine, Aviation and Transport, Motor, Miscellaneous, Value Added Services, and Takaful. Its clients include both large and medium sized organisations in all sectors of the economy. In addition to this, Window Takaful operations have also been started since 2015.
Over the years, EFU General has also developed a full range of insurance services for large infrastructure projects including oil and gas exploration field. The firm is rated Insurer Financial Strength AA+ by the rating agencies with a stable outlook.
EFU General has sound reinsurance arrangements with leading international (securities), like SCOR Global P&C, Swiss Reinsurance Company, Allianz SE Reinsurance Company, Hannover Reinsurance Company, Korean Reinsurance Company and Lloyds of London - all of them being A rated.
Pattern of shareholding and share price The shares of EFU General are quoted on Pakistan Stock Exchange and the performance of the stock has not been too drastic as its trades along the benchmark index. The company's shareholding pattern is such that 20.6 percent of the firm is held by Jehnagir Siddiqui and Co., while around 12 percent is held by charitable organisations and institutes. General public and individuals hold a significant portion - 31.45 percent. A breakup of the shareholding is given in the illustration.
Industry overview The insurance industry in Pakistan is small compared to its peers in the region and the penetration to GDP remains very low, only between 0.7-0.9 percent. This is largely due to lack of awareness as well as due to the existence of a large undocumented economy.
However, in recent years, the sector has seen a growth of around 10-13 percent in gross written premium, the revenues for the insurance companies, which is expected to continue.
Currently, there are nine life insurance companies in the country with two family Takaful operators and one state owned insurer. In 2016 the life insurance sector grew by around 11 percent in terms of gross written premiums. In non-life insurance segment, there are 41 players operating in the market including three Takaful operators and one state owned insurer. The isolated growth in this segment witnessed in 2016 was around 15-18 percent primarily led by CPEC and related infrastructure development.
While the numbers for 2017 are not out, this growth momentum is likely to have continued in 2017 and is expected to be taken forward to 2018 as well especially in the motor and property portfolios, while marine, which remained slow in 2016 due to weaker commodity prices could see some recovery. Positive underwriting results in recent times have been due to better security and terrorism situation in the country. However, this has put pressure on premiums, which are increasing now.
A key rising trend in the non-life general insurance segment is the rise of Takaful. And according to SBP's Financial Stability Review 2016, the most significant growth has been reported by the Takaful segment in 2016 due to the influx of conventional insurers in the Takaful market in the form of Window Takaful Operators (WTOs).
In non-life insurance companies, it has been seen that the gross and net premiums have grown over the last few years. however, the decline in investment income and a rise in underwriting expenses have pushed the profitability of the sector down.
The year 2017 however, was better in terms of profitability for the non-life insurance companies. Better economic activity an improved overall macroeconomic landscape continued to strengthen in 2017 as GDP growth rate reached to 10-year high of 5.3 percent.
EFU General - operational and financial performance EFU General has done well in beating the competition. Over the last five years, it can be seen that the firm's claim ratio - percentage of claims costs incurred in relation to the premiums earned - has continuously improved, while its income has also surged in these five years.
For non-life insurance companies, investment income makes a big part of the firm's profitability, and usually a larger chunk versus the technical income acting as a buffer EFU General's income from investments were around 78 percent in 2015, when the firm's underwriting profits were only 22 percent.
The changes in 2016 depict higher percentage of underwriting profits vis-à-vis investment income. EFU witnessed a decline in its PAT for 2016 by 40 percent, year-on-year.
In 2017, EFU General restricted the decline in PAT. It made a history by writing over Rs 20 billion premium including takaful contribution, depicting a rise of 19 percent, year-on-year, whereas the growth in net revenue premium was around 5 percent, year-on-year. Fire and Property segment saw the highest growth in written premium in 2017.
Outlook EFU general enjoys 85 years of experience. As part of its 2018 strategy, the non-life insurance company aims to continue delivering sustainable, profitable growth in a changing and competitive business environment to safeguard it leading position in the industry. It specifically is looking to further working on takaful market as the Window Takaful Operations are growing.
Apart from expanding general takaful solutions, key opportunities for EFU General lie in expanding its distribution network. Also, the firm believes that with increasing mobile penetration amongst the masses, it can utilize such platforms for customer interaction, awareness, marketing and sales.
In general, the insurance sector is ready to benefit from the increasing urbanization and the emerging industrial sector.
The insurance industry as a whole has many unexplored insurance segments under micro insurance, personal lines products like health and home insurance which the sector can tap into. And the CPEC (China Pakistan Economic Corridor) offers great opportunity for the insurance industry to not only increase size of the industry across all lines of business like power and energy, cement, steel and auto industry but to attract the attention of the leading international reinsurers.

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EFU General Insurance Limited-Pattern of Shareholding (As on Dec 31, 2017)

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Categories of shareholders                                 Percentage held

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Associated Companies, Undertakings and Related Parties              38.06%

Directors, CEO, & their spouses and minor children                   9.40%

Executives                                                           0.12%

Public sector companies & corporations                               2.15%

Banks, Development Finance Institutions,                             1.50%

Non-Banking Finance Institutions, Insurers,

 Modarabas and Mutual Funds

Charitable Institutions                                             12.11%

Individuals/Others                                                  31.45%

Foreign Investors (repatriable basis)                                5.21%

Shareholders holding 5 % or more voting interest

Jahangir Siddiqui & Co Ltd                                          20.60%

Managing Committee of Ebrahim Alibhai Foundation                    12.02%

Rafique R. Bhimjee                                                   8.29%

Muneer R. Bhimjee                                                    7.98%

Bano R. Bhimjee                                                      6.92%

EFU Life Assurance Ltd                                               6.81%

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Source: Company accounts

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EFU General Insurance Limited-Key Financial Data

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Rs(mn)                               2013      2014      2015     2016   2017

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Written Premium

(including Takaful Contribution)   13,882   14,514    1,514   17,195   20,405

Earned Premium                     13,270   14,269   14,648   15,435   17,730

Net Premium Revenue                 6,342    6,532    6,677    7,243    7,615

Underwriting Result                   772    1,316    1,053    1,789    1,628

Investment & Other Income           1,408    1,584    4,058    2,043    1,928

Profit/(Loss) before tax            1,632    2,262    4,809    3,781    3,441

Profit/(Loss) after tax             1,392    1,829    4,034    2,392    2,344

Paid-up Capital                     1,250    1,600    1,600    2,000    2,000

Shareholders' Equity               11,908   13,111   15,847   16,901   17,047

Breakup Value per Share (Rs)        95.26    81.94    99.04    84.51    85.24

Investments & Properties           15,002   15,860   19,357   20,511   23,319

Cash & Bank Balances                2,083    1,521    1,749    1,867    1,595

Total Assets Book Value            28,939   29,227   32,264   36,204   39,102

Dividend           %                   50       60       75      100      100

Bonus              %                   28        -       25        -        -

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