Operating in the insurance industry since 2005, TPL Direct Insurance (KSE: TDIL) is armed with an asset size of Rs 1 billion and equity worth Rs 439 million. The company is a subsidiary of TPL Holdings Pvt Ltd. Having a strong presence in the field of motor insurance, the company stepped into home insurance business in 2012 and marked its entry in health insurance business.
In this pursuit, the company has reportedly joint hands with Tameer Microfinance Bank to offer micro health insurance to low income, middle-class groups residing in trivial areas for them access to financial institutions is unreachable. In order to extend its outreach, the company is focusing on expanding its footprints in Punjab region, which constitutes over 30 percent of firm's total business according to company's director report for 2013.
COMPANY'S PORTFOLIO: The insurance portfolio of the company consists of travel, home, auto and health insurance. However, auto insurance dominates TDIL's portfolio in terms of premiums earned. In 2013, premiums earned from motor insurance segment contributed 99 percent of the firm's total premiums.
OVERVIEW OF PROFITABILITY: TPL Direct Insurance has been on a drive to boost its profitability year after year. However, 2008 was an exception to this trend. Floods occurring in several parts of Pakistan gave a blow to company's bottom line in 2008 as it nose-dived to a loss of Rs 18 million in a single year. With things moving in the right direction since then the company has managed to post double-digit profitability growth.
2013: REVIEW OF FINANCIAL PERFORMANCE TDIL's upward march continued in 2013 as well, with the company experiencing a surge of 19 percent year on year in profit after taxation. But, such a rate of growth pales when compared to a 43 percent growth witnessed in 2012.
In terms of top line, gross premium of the company grew by 23 percent year on year in 2013, while net premiums rose by 18 percent year on year. Nonetheless, a look at the historical data of the company reveals that this is the slowest growth in TDIL's gross and net premiums witnessed over the last five years despite company's recent entry into health and home insurance business. Probably, the company is putting things in order which may bear its fruits in times to come.
With growing premiums, net claims ratio (net claims to net premiums) also continued to soar. The ratio shot up by 200bps year on year in 2013.
On the other hand, with expenses under control, underwriting margin witnessed an improvement of 200bps thus nullifying the impact of rise in claims ratio. And with this, expense ratio also dipped to 35 percent in 2013 from 39 percent in 2012, reflecting that the management continued with its strategy to keep a check on expenses to boost its profitability.
What the company can focus on is improving its income from investments. Investment generation ratio of the company stands at mere one percent--not even comparable to the industry!
Lower investment income is on account of company's skimpy investments in equities and concentration in PIBs where rate of return is low when compared to equity instruments. Based on 2013 financials, the firm's investment portfolio is invested nearly 66 percent in associate company (TPL Properties), 32 percent in long-term Pakistan Investment Bonds (PIBs), while the remaining three percent is invested in equity shares and mutual shares. Had the firm invested a greater proportion of say 20-30 percent in equities, the company would have cherished much higher profits.
2012: REVIEW OF FINANCIAL PERFORMANCE 2012 remained a pleasing year for TDIL, with the bottom line boasting a handsome 43 percent year-on-year growth on the back of growth in premiums earned.
On the contrary, net claims continued to move in tandem with growth in premiums. Claims ratio of the firm stood at 41 percent in 2013 (2012: 38 percent). However, expense ratio saw a downturn with a dip of 100bps in 2012. Owing to the aforementioned reasons, underwriting margin of the firm dipped by more than two percent.
What bolstered the bottom line was firm's 'other income' that posted an increase of two-fold during the year, thus providing additional cushion to the bottom line. The primary growth in 'other income' came on back of interest charged to holding company for purchase of C-Track units and annual monitoring fees.
GOING ONWARDS...TDIL's aggressive marketing initiatives together with investment in active call centre services have lent a hand in boosting in premiums especially in motor segment. Also, the company's unique motto of attending claims in 60 seconds, claims processing in 45 minutes and settlement of losses and theft claims in seven days has caught the eyeballs of many customers in recent times, thus adding to rise in fresh business. According to company's director report, the company achieved a renewal ratio of 64 percent in 2013, while generated an increase of 20 percent in fresh business.
Talking about coming times, the company is reportedly planning to introduce new product lines in Bancassurance and pitching commercial banks for leasing portfolio to boost its motor insurance business.
With such distinctive initiatives along with continuous investment in technology, the top line of the company is anticipated to flourish in coming periods. But with this, the management should be mindful of burgeoning expenses that can exert pressure on firm's bottom line. For all that, the company can focus on tweaking its investment portfolio mix to include a higher proportion of equities. This can become one comforting prospect for firm's bottom line in times of tiring premiums from its insurance business.
TPL Direct Insurance (Profit & loss account)
Rs (mn) 2008 2009 2010 2011 2012 2013
Gross premium 185 289 409 513 706 870
Net premium revenue 167 223 331 454 620 733
Net claims (49) (65) (142) (171) (254) (314)
Expenses (96) (112) (136) (163) (213) (227)
Net commission (13) (17) (35) (46) (65) (78)
Underwriting results 9 29 18 74 88 114
Investment income 2 (2) 4 8 6 7
Other income 6 15 15 33 76 67
Financial charges (1) (6) (8) (5) (1) (1)
General and administrative expenses (20) (26) (42) (67) (107) (109)
Profit/(Loss) before tax (4) 10 (13) 43 62 78
Taxation 6 (8) (5) (13) (19) (27)
Profit/(Loss) after tax 2 2 (18) 30 43 51
2008 2009 2010 2011 2012 2013
Underwriting margin 5% 13% 5% 16% 14% 16%
Net profit margin 1% 1% -5% 7% 7% 7%
Claims ratio 29% 29% 43% 38% 41% 43%
Return on assets 1% 0% -3% 4% 5% 5%
Return on equity 1% 1% -9% 8% 11% 12%
Expenses ratio 59% 45% 42% 41% 39% 35%
Comined ratio 88% 74% 85% 78% 80% 78%
Investment generation ratio 1% N/A 1% 2% 1% 1%