Nine-month results: Profit of EFU Life Assurance shrinks by one-fourth

Earnings of EFU’s non-life insurance arm down by 49%.

KARACHI:

Net profit of EFU Life Assurance decreased to Rs513.8 million in January-September, down 24.3% from the corresponding nine-month period in 2012, according to a notice sent to the Karachi Stock Exchange (KSE) on Monday.

Commenting on the drop of almost one-fourth in the company’s profit, EFU Life Assurance Managing Director and CEO Taher G Sachak said it is mainly because of reduction in net investment income of the shareholders’ fund.

“Due to improving stock prices in January-September 2012, the company had booked a reversal in impairment of Rs154 million for certain strategic available-for-sale investments in the shareholders’ fund. This had a direct positive impact on the after-tax profit back then,” he told The Express Tribune in an interview on Monday.

However, he added, there has been no further reversal in impairment during January-September 2013, which is why the difference appears as a reduction in the company’s after-tax profit.

Investment and other income of EFU Life Assurance decreased to Rs746.1 million in the July-September quarter, reflecting a massive drop of 54.2% compared to the third quarter of 2012.

Similarly, the year-on-year decline in investment and other income of the company has been a little over 10% during the nine-month period.

Sachak attributes the rapid fall in investment and other income to changing yields on market treasury bills, which have slipped from almost 12% to 8.9%. T-bills’ rates have come down rapidly because of the declining discount rate, which was 12% in 2012 as opposed to 9% until the announcement of the last monetary policy in September.

While nine-month revenues increased 7.9% to Rs12.7 billion, the top line shrank 8.2% to Rs3.7 billion in the third quarter alone.

Falling profits of EFU Life Assurance seem to have left a negative impact on the company’s stock price. At the end of trading on October 25, its price was Rs70.2 per share, which reflects a fall of over 22.1% since the beginning of 2013 when the stock traded at Rs90.1 a share. This is despite the fact that the benchmark index has risen more than 54% over the same period.



However, Sachak says the company’s share volume traded on the KSE is ‘very thin.’

“As such, the movement in the share price does not necessarily follow the general market trend. Neither does the current share value reflect the actual substantial appraisal value of the company,” Sachak noted.

Calling his company’s performance ‘satisfactory,’ Sachak says traditionally a significant spike in business is recorded in the last quarter of every year.

“It results in an improved top line and bottom line performance as well as better absorption of the year’s expenses,” he said, adding he is confident that EFU Life Assurance’s results will improve further in the last quarter of the current year.

EFU General’s profit nosedives

Meanwhile, after-tax profit of EFU General Insurance decreased by almost half in the first nine months of 2013, according to a notice sent to the KSE on Monday.

Net profit of EFU General Insurance stood at Rs654.1 million in January-September, down 49% compared to the corresponding period last year when the company’s earnings amounted to Rs1.2 billion.

The drastic drop in the profit occurred despite the fact that its net premium revenue increased slightly by 1.5% to Rs4.6 billion from Rs4.5 billion.

Like its life insurance counterpart, investment income of EFU General Insurance also nosedived in the nine-month period. It dropped by a massive 41.8% to Rs382 million in the period under consideration.

Published in The Express Tribune, October 29^th, 2013.

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