EFUG - recovery on investment income
The already low penetration of the insurance sector has come under further pressure with currency depreciation and slower economic and industrial activity, which has pushed up insurance premium in the non-life segment.
Against the backdrop, EFU General Insurance Limited’s (PSX: EFUG) financial performance for CY19 has been sanguine. EFUG is a non-life insurance company with products in the motor, marine, fire & property segments, and others such as travel liability, money, credit card insurance. It announced CY19 financial performance recently where its EPS rose by 20 percent year-on-year despite flattish growth in EFUG’s net insurance premium – topline. It also announced a cash dividend of Rs5.5 per share in addition to first, second and third interim dividend of Rs4.5 per share already paid.
| EFU General Insurance Limited - Unconsolidated accounts | |||
| Rs(mn) | CY19 | CY18 | YoY |
| Net insurance premium | 7,460 | 7,562 | 1.4% |
| Net insurance claims | 3,549 | 3,089 | 14.9% |
| Net commission and other acquisition costs | 556 | 588 | -5.3% |
| Management expenses | 2,849 | 2,579 | 10.5% |
| Underwriting results | 505 | 1,307 | -61.3% |
| Investment income | 2,262 | 1,612 | 40.3% |
| Rental income | 112 | 104 | 8.0% |
| Other income | 219 | 161 | 35.8% |
| Chainge in fair value of investment property | 434 | 11 | 3962.3% |
| Other expenses | 51 | 50 | 1.6% |
| Result of operating activities | 3,482 | 3,145 | 10.7% |
| Finance cost | 14 | - | |
| Resversal of workers' welfare fund | 146 | - | |
| Profit from Window Takaful operations - Operator's Fund | 214 | 117 | 82.3% |
| Profit before tax | 3,827 | 3,262 | 17.3% |
| Income tax expense | 1,219 | 1,091 | 11.7% |
| Profit after tax | 2,609 | 2,171 | 20.1% |
| EPS (Rs/share) | 13.04 | 10.86 | 20.1% |
| investment income | 30.3% | 21.3% | |
| PAT/Net Premium | 35.0% | 28.7% | |
| Underwriting Results/ Net Premium | 6.8% | 17.3% | |
| Net Claims/Net Premium | 47.6% | 40.8% | |
| Net Commission /Net Premium | 7.5% | 7.8% | |
| Management expenses/Net Premium | 38.2% | 34.1% | |
| Source: PSX |
Compared to a 22 percent decline in 9MCY19 profits, growth in CY19 earnings was a pleasant rebound, which grew primarily due growth in investment income – usually a big chunk of revenues for insurance companies that diversify risk.
EFUG’s net insurance claim and management fee grew moderately by 15 and 10 percent year-on-year, while net commission and acquisition cost came down by 5 percent year-on-year. However, growth in these costs resulted in sliding underwriting results to premium ratio.
The investment income increased by 40 percent, year-on-year, which was of key support to EFUG’s bottomline and came from higher interest rate environment in the country. Additional income from Takaful operations also supported the bottomline.
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