NEW JUBILEE INSURANCE – Analysis of Financial Statements Financial Year 2004 – Financial Year 2009

New Jubilee Insurance was established in 1953. NJI is listed on the Karachi and Lahore stock exchanges. Major shareholders include Aga Khan Fund for Economics Development and Hashoo Group.

The company has reinsurance arrangements with international reinsurers such as Swiss Re, Munich Re, Lloyds, Hanover Re and Mitsui Sumitomo Re. In 2003, NJI became the first Pakistani insurance company to acquire a foreign company when it took over the Pakistan operations of Commercial General Union. Together with AKFED, NJI also acquired majority control of CU Life Assurance Company of Pakistan Ltd.

NJI not only offers wide risk coverage, but also provides related risk management services. NJI has developed unique and innovative insurance solutions to meet the growing consumer financing trends of economy. From auto financing to personal loans, mortgages to plastic cards, and trade finance to capital investment finance, NJI has the customized solutions to secure entire operations. NJI is the pioneer in the Group Health Insurance. NJI’s client-base comprises prominent national and multinational corporations operating in pharmaceuticals, chemicals, textiles, cement, services (hospitals and hotels), manufacturing, FMCGs, engineering, oil and energy, and banking and financial sectors.

INDUSTRY REVIEW

The global recession and the stagnant domestic economy during 2009 had an impact on the non-life insurance industry of Pakistan. The written premium of entire sector grew by less than 5% in 2009 (3.5% in 2008). The stagnant premium growth is mainly due to a substantial slow down in the motor business, contraction of the Large Scale Manufacturing (LSM) sectors, international trade, and low investment especially in infra structure projects. However due to the significant recovery on the stock exchange, the investment income of the industry has increased substantially.

Recent results (FY09)

In the financial year 2009, NJI achieved a growth of 14% in the written premium, which crossed Rs 4 billion mark with a balanced product mix. The figures below indicate that significant increases were recorded in underwriting profit, investment income pretax and after tax profit.

=============================================================================
2009 2008
=============================================================================
(Rupees ‘000)
=============================================================================
Gross Premium 4,030,643 3,526,397
Net Premium Revenues 2,297,720 2,186,443
Underwriting Result 114,121 108,115
Investment Income including Capital Gain and Rent 673,537 366,030
Impairment in value of available for sale Securities – (651,142)
Profit/(loss) before tax 771,898 (179,153)
Profit/(loss) after tax 656,464 (267,249)
Earning/(Loss) per share of Rs 10 each 9.96 (4.05)
=============================================================================

The net premium in FY09 was Rs 2297.723 million. The largest contribution towards the net premium was made by motor insurance of 29%, followed by Fire & Property of 27%, followed by accident and health of 18%.

During FY09, the underwriting result summed up to Rs 114.121 million. The largest contribution to the underwriting result was made by marine, aviation and transport of Rs 68.686 million (60%), followed by motor insurance of Rs 51.091 million (45%), followed by liability of Rs 26.868 million (24%).

During FY09, cash and bank deposits increased by 21.43%, ending at Rs 2028 million. Investments increased by 22.58%, ending at Rs 1753 million. Total assets increased by 18.34%, ending at Rs 6419 million. Total equity increased by 27.15%, ending at Rs 2621 million.

Net claims increased by 6.64%, ending at Rs 1420 million. Expenses increased by 5.66% but net commission fell by 4.97%.

=============================================================================
% increase/ (decrease) over preceding year
=============================================================================
Balance Sheet 2009 2008
=============================================================================
Cash and bank deposits 21.43 (0.62)
Loans to employees (19.23) (15.94)
Investments 22.58 (26.88)
Investments properties 20.86 62.50
Deferred taxation (11.11) (42.51)
Other Assets 13.71 4.60
Fixed assets – Tangible and intangible 8.77 (45.95)
Total Assets 18.34 (8.55)
Total Equity 27.15 (14.53)
Underwriting Provisions 9.54 (3.31)
Staff retirement benefits (22.59) (16.43)
Creditors and accruals 29.25 (7.21)
Other Liabilities 13.94 (9.83)
Total Shareholders’ Equity & Liabilities 18.34 (8.55)
—————————————————————————–
Profit & Loss Account
—————————————————————————–
Net premium revenue 5.09 20.22
Net claims 6.64 (5.75)
Expenses 5.66 24.89
Net Commission (4.97) 15.92
Investment income rental & bank deposits returns 84.01 (53.09)
Other income including share of profit of an associates (72.17) 80.67
General and administration expenses 5.36 148.48
Impairment in value of available for sale securities – –
Profit/(Loss) before tax (530.86) (131.15)
Taxation – net 31.03 (756.70)
Profit/(Loss) after tax (345.64) (145.42)
=============================================================================

FIRE AND PROPERTY

The underwriting profit of Fire and Property was Rs 17.6 million for FY09 as compared with Rs 38.8 million in the FY08. The decline is due to increase in claims as a result of heavy rainfall in July 2009 in Karachi.

MARINE, AVIATION AND TRANSPORT

Underwritten premiums declined in this portfolio primarily due to a steep fall in the international prices of oil and metals and some other commodities as well as contraction in international trade.

MOTOR

The underwritten premiums declined in this portfolio due to lower sale of motor vehicles in 2009, mainly due to a reduction in financing by banks and other financing institutions. This class, however, contributed Rs 51 million to NJI’s underwriting profit, which represents a tremendous improvement over the company’s underwriting profit of Rs 2.38 million in the FY08.

LIABILITY

This portfolio has grown robustly by 83% to achieve a written premium of Rs 358 million (2008: 196 million).

This growth has been achieved due to expansion in the industrial/commercial activities of NJI’s clients.

ACCIDENT AND HEALTH

In FY09, this portfolio increased marginally by 2% to reach written premium of Rs 410 million (2008: Rs 401 million). This portfolio has resulted in a loss of Rs 20.47 million (2008: Profit of Rs 19.4 million) mainly due to competitive pressures on premium rates, increase in hospitalisation cost and higher claims ratios of some large accounts.

OTHER CLASSES

This represents miscellaneous classes of business including engineering, financial products, crop insurance etc. The underwritten premium of Rs 1159 million is 66% higher than the premium of Rs 700 million written in the previous year. This account also resulted in an underwriting loss of Rs 26.24 million in the FY09 (2008: Rs 12.06 million)

OPERATING PERFORMANCE

The gross premium and net premium revenue have shown a progressive increase over the years. In the FY09, Gross Premiums increased by 14% and stood at Rs 4030.646 million on 31st December 2010. The net premium increased by 5.09% and stood at Rs 2297.72 million on 31st December 2010. Though there has been a constant growth in gross premium and net premium revenue, industry experts believe that this growth is rather slow. Growth can sharply increase if the motor business expands, and if there is an expansion in the Large Scale Manufacturing sector and international trade.

An in-depth analysis of operating performance shows that the underwriting profit as a percentage of net premium has increased from 4.94% to 4.97%. The underwriting profit as a percentage of gross premium, however, has decreased from 3.07% to 2.83%. The figures indicate that though the underwriting result has increased for the FY09, they have more potential of increase. Operating performance has been hampered primarily due to a slow growth in gross and net premiums.

INVESTMENT RETURNS

In FY09, the investment income increased from Rs 181.707 million to Rs 452.253 million. This can be attributed to the increase in the return on fixed income securities and term finance certificates. Furthermore, there was a large gain on the sale of non-trading investments. Realised capital gains contributed Rs 355.8 million in the FY09, whereas in the FY08, NJI had only realised a capital gain of Rs 99.7 million due to a very sharp decline in share values in KSE. Hence, investment income to net premium ratio increased from 8.30% to 19.68% by the end of the FY09.

The investment income to investment assets ratio increased from 12.70% to 25.80% because an increasing trend was witnessed in the investment income and the investment assets during the year. The investment income increased by 149% and the investment assets increased by 23%.

DEBT MANAGEMENT

The debt management ratios show a U-shaped trend till 2008 because the debt burden of the company reduced but increased in the FY07 and FY08. In FY09, the Debt to Assets Ratio decreased from 62% to 59.17%. During the year, total liabilities increased by 13%, from Rs 3363 million at the end of FY08 to Rs 3798 million at the end of FY09. Furthermore, total assets increased by 18%, from Rs 5425 million at the end of FY08 to Rs 6419 million at the end of FY09.

The debt to equity ratio had increased by the end of FY08. In the FY09, the Debt to equity ratio decreased from 1.63 times to 0.14 times. During the FY09 equity was seen to increase by 27%, ending at Rs 2621.006 million.

EXPENSE ANALYSIS

The expense analysis reveals that NJI performed poorly during the FY09. The loss ratio increased from 60.89% to 61.84%. The expense ratio increased from 23.14% to 39.15%. Hence, the combined ratio (which is the sum of the loss ratio and the expense ratio also increased during FY09. This can be attributed to a simultaneous increase in net claims and expenses during FY09. The net claims increased by 6.64% and the expenses increased by 5.66%.

The reinsurance expense to net premium ratio had decreased in the FY08 from 88.61% to 61.14%. However, during FY09, the reinsurance expense to net premium ratio increased and stood at 75.42% by the end of the year.

Profit after tax to net premium was one ratio which showed a significant improvement in the FY09. It was recorded at 12.21% at the end of FY08 and by the end of FY09, it was recorded at 28.57%. This was primarily because NJI had incurred a loss after tax of Rs 262.249 million at the end of the FY08 and the company reversed their position, by recording a profit after tax of Rs 656.464 million by the end of the FY09.

CAPITAL ADEQUACY

The paid-up capital to total equity ratio has shown an increasing trend since FY06. However, this trend reversed in the FY09, when NJI’s paid-up capital to total equity ratio decreased from 31.98% at the end of the FY08 to 25.15% at the end of FY09. For the first time since the FY04, the company’s paid up capital remained constant at Rs 659.148 million.

The equity to total assets had been decreasing since the FY07. However, this trend too reversed in the FY09, when NJI’s equity to total assets ratio increased from 38% at the end of the FY08 to 40.83% at the end of the FY09. During FY09, the increase in equity outweighed the increase in assets. The equity increased by 27% and the total assets increased by only 18%.

INVESTOR EXPECTATIONS

During the FY09, NJI’s EPS increased from Rs (4.05) to Rs 9.96. Furthermore, the dividend per share increased by a full 100%, from Rs 1.5 at the end of the FY08 to Rs 3 at the end of the FY09.

During the FY09, the market price decreased from Rs 98.16 at the end of the FY08 to Rs 58.24 at the end of the FY09. Hence, the EPS and the DPS show positive investor expectations.

In FY09, the dividend per share, as noted above, increased by a full 100% and was recorded at Rs 3 at the end of the year. Dividend Yield increased from 1.53% to 5.15%. Dividend Payout increased by (37%) at the end of the FY8 to 30% at the end of the FY09. Hence, the dividend ratios all indicate that the company performed well given the stagnant domestic economy.

FUTURE OUTLOOK

On the core insurance business front, the insurance sector of Pakistan is relatively under-served as insurance penetration is currently at 0.5% versus 1.3% in emerging markets. Notwithstanding the sizable claims realized by the insurance sector, claims will normalise and curbing of economic derailment coupled with a stable law and order outlook should provide impetus to the mainstay Fire and Marine insurance businesses. However, keen competition, particularly with pricing, alongside the decline in growth of consumer vehicle loans is likely to dampen growth of the motor insurance segment.

Amidst the political uncertainty and the difficult economic situation, the company plans to lay emphasis on strengthening the underwriting discipline with a view to improving the quality further thereby making all classes profitable. NJI needs to work hard on its claims ratios and further improve its underwriting results by appropriate risk identification and premium charges. The company intends to further capitalise on the new opportunities expected to arise from the development of infrastructural projects and maintain its growth momentum in future years.

==========================================================================================================
NEW JUBILEE INSURANCE- KEY FINANCIAL DATA
==========================================================================================================
Earnings FY’04 FY’05 FY’06 FY’07 FY’08 FY’09
==========================================================================================================
In Rupees (000s)
==========================================================================================================
Gross Premium 1,404,000 1,737,000 2,571,883 3,430,376 3,526,397 4,030,646
Reinsurance Expense 764,190 819,880 1,085,454 1,611,601 1,337,954 1,618,366
Net Premium Revenue 639,810 917,120 1,486,429 1,818,775 2,188,443 2,297,720
Total Claims Incurred 392,700 554,260 887,587 1,413,733 1,332,481 1,420,977
Underwriting Expenses 187,580 293,250 499,166 405,432 506,324 899,493
Underwriting Result 67,570 69,600 99,676 -207,033 108,115 114,121
Investment Income 151,860 487,250 690,178 599,208 181,707 452,253
Profit Before Tax 271,980 614,410 936,793 575,041 -179,153 771,898
Tax 65,840 58,210 9,506 13,415 -88,096 115,434
Profit After Tax 206,140 556,200 841,733 588,456 -267,249 656,464
———————————————————————————————————-
Balance Sheet FY’04 FY’05 FY’06 FY’07 FY’08 FY’09
———————————————————————————————————-
In Rupees (000s)
———————————————————————————————————-
Paid up capital 318,430 366,193 439,432 549,290 659,148 659,148
Equity 747,410 1,193,180 2,034,251 2,411,663 2,061,314 26,212,006
Investments (Book Value) 855,830 1,071,853 1,261,854 1,955,892 1,430,217 1,753,158
Cash & Bank balances 608,220 862,120 1,686,561 1,680,625 1,670,155 2,028,132
Total Assets 2,436,730 2,785,390 4,376,785 5,932,706 5,425,172 6,419,889
Total Liabilities 1,689,320 1,592,210 2,342,534 3,521,043 3,363,858 3,798,883
———————————————————————————————————-
Operating Performance (%) FY’04 FY’05 FY’06 FY’07 FY’08 FY’09
———————————————————————————————————-
Underwriting Profit / Net Premium 10.56 7.59 6.71 -11.38 4.94 4.97
Underwriting Profit / Gross Premium 4.81 4.01 3.88 -6.04 3.07 2.83
Loss Ratio 61.38 60.43 59.71 77.73 60.89 61.84
Expense Ratio 29.32 31.98 33.58 22.29 23.14 39.15
Combined ratio 90.70 92.41 93.29 100.02 84.02 100.99
Return on Assets 8.46 19.97 19.23 9.92 -4.93 10.23
Reinsurance Expense/Net Premiums 119.44 89.40 73.02 88.61 61.14 75.42
———————————————————————————————————-
Liquidity FY’04 FY’05 FY’06 FY’07 FY’08 FY’09
———————————————————————————————————-
Current Ratio 1.39 1.80 1.78 1.60 1.54 1.62
Total Assets turnover 0.58 0.62 0.58 0.58 0.65 0.63
Fixed Assets Turnover 10.97 12.07 14.39 15.02 14.72 16.86
Liquid assets/ total assets (%) 60 69 66 61 57 59
Equity/ Total assets (%) 31 47 47 41 38 41
———————————————————————————————————-
Debt Management FY’04 FY’05 FY’06 FY’07 FY’08 FY’09
———————————————————————————————————-
Debt/Assets Ratio/ % 69.33 57.16 53.52 59.35 62.00 59.17
Debt/Equity 2.26 1.33 1.15 1.46 1.63 0.14
———————————————————————————————————-
Capital Adequacy FY’04 FY’05 FY’06 FY’07 FY’08 FY’09
———————————————————————————————————-
Paid-up Capital / Total Equity 42.60 30.69 21.60 22.78 31.98 2.51
Equity/Total Assets 30.67 42.84 46.48 40.65 38.00 408.29
———————————————————————————————————-
Profitability Ratios/ % FY’04 FY’05 FY’06 FY’07 FY’08 FY’09
———————————————————————————————————-
Investment income/Net premiums 23.74 53.13 46.43 32.95 8.30 19.68
Investment income/Investment assets 17.74 45.46 54.70 30.64 12.70 25.80
Profit After tax/Net Premium 32.22 60.65 56.63 32.35 -12.21 28.57
———————————————————————————————————-
Market Value Ratios FY’04 FY’05 FY’06 FY’07 FY’08 FY’09
———————————————————————————————————-
Earnings Per Share 3.19 6.33 9.58 10.71 -4.05 9.96
Market price/ share (at the end of year) 75.00 70.85 92.30 222.25 98.16 58.24
Dividends per share 1.50 1.50 2.00 3.00 1.50 3.00
Dividend Yield (%) 2.00 2.12 2.10 1.35 1.53 5.15
Dividend Payout (%) 46 20 21 28 -37 30
==========================================================================================================

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s