EFU General Insurance - the titan of EFU General Insurance - was formed under the financial backing of Agha Khan III and the Nawab of Mughal. It, however, came into being in 1932 where Mr Ghulam Muhammad led the formation of this company. While securing a prominent footing in the country's insurance sector, the insurer is engaged in offering insurance schemes in the field of property, marine/aviation, motor and miscellaneous products. Besides, the company enjoys reinsurance arrangements with leading re-insurers such as Swiss Re of Switzerland, SCOR of France, Hannover Re of Germany, and Lloyd's of London.
THE LEADING INSURER For a long time, EFU General has secured its positioning as the country's leading insurer in terms of market share. Taking clue from the statistics released by Insurance Association of Pakistan, EFU General dominates 26 percent of the entire private non-life insurance sector in terms of net premium revenues, as of December 2014. Moreover, Adamjee Insurance and Jubilee General followed the lead with market shares of 18 percent and 13 percent, respectively.
It is, however, pertinent to note that the top 5 insurers continue to rule the market with a cumulative share of 65 percent while the market shares of remaining 23 insurers (total insurers reported by IAP= 28) remain trifling and hover in the range of 0-3 percent.
INVESTMENT PORTFOLIO: In line with industry wide trends, EFU General maintains fondness for equities and its investment allocation speaks volumes of the observation. With a cumulative exposure in equities (associate + shares) of over 80 percent, the firm churns healthy dividend income and capital gains on its equity holdings. And hence, investment income contributes its due share towards bottom line growth.
However, the investment income ratio of the firm, which stands at 14 percent, is on the lower side when weighed against the industry average of 31 percent. In that sense, the firm is positioned better considering that it doesn't depend heavily on its investment income for profitability growth. Moreover, government securities frame nearly 13 percent of the investment portfolio of EFU General, while the remaining is invested in mutual funds.
UNWELCOMING CY15: The start of CY15 failed to prove heartening for its stakeholders as the insurer registered a double-digit decline in its profitability during the quarter ending March 2015. This was attributable mainly to the poor performance of its core business as falling premiums and rising claims and management expenses weakened the appeal of its underwriting profits which dwindled by 34 percent year-on-year. Investment income, too, remained muted, while some support was provided by the share of its associate (ie EFU Life) profits that ballooned by a decent Rs 40 million. Combining all, profitability witnessed a downfall of 14 percent during the period.
CY14 - A COMEBACK YEAR! Followed by a flattish year, EFU General came back with a bang in CY14. The firm reported a handsome 31 percent growth in its bottom line during the year with the growth being attributable mainly to the improvement in claims expenses.
No wonder the insurer has been doing a remarkable job in improving its claims management and the drastic decline in its claims ratio from 54 percent in CY13 to 46 percent in CY14 bears testament to that. Hence, in a bid to improve the quality of its insurance portfolios, the firm seems to have adopted a prudent approach to boost the premium growth. This is evident as the growth in premiums remained minimal at 3 percent during the year. All these factors have fared well for the firm in terms of healthier underwriting profits and cleaner portfolios.
If the firm is able to keep up the pace with its aggressive book-cleaning exercises, then better underwriting profits will be the feasts in coming periods. Moreover, investment income also lent a good hand in uplifting the bottom line growth by registering an impressive increase of 19 percent during the year. Capital gains on equities and government securities seem to have done the trick for the insurer during the year. And there was another reason for investors to smile as the company announced a cash dividend to the tune of Rs 5 per share in addition to interim dividend disbursed during the year.
GOING ONWARDS Considering the regulatory developments taking place in the industry, it looks like the industry is all set to take off to the expansion phase. SECP seems to have a clear vision and a defined roadmap on its table, thereby allowing it to adjust the regulations accordingly. Recent development such as the introduction of microinsurance regulations and the allowance of window takaful operations need to be lauded. And EFU General seems to be gearing up to jump on the takaful bandwagon.
Be that as it may, creating awareness and development of alternative distribution channels are the crucial ingredients to expand the country's insurance penetration levels.
EFU General Insurance - Financial Highlights
Rs (mn) CY12 CY13 CY14 1QCY15
Net premium revenue 6,009 6,341 6,532 1,693
Net claims (3,297) (3,406) (2,973) (891)
Management expenses (1,285) (1,375) (1,482) (393)
Net commission (748) (788) (760) (187)
Underwriting result 679 772 1,317 222
Investment income 851 772 915 240
Share of profit of an associate 390 398 404 131
General& administrative expenses (512) (524) (592) (154)
Profit before taxation 1,615 1,623 2,263 485
Profit after taxation 1,566 1,392 1,830 398
Net claims to Net premium ratio 55% 54% 46% 53%
Source: Company accounts