EUR 4.56 For Business Accounts Only

JKSB Quarterly Highlights_People's Insurance PLC (PINS)_3QCY17

PINS reported a 11% YoY decline in profit for 3QCY17, with growth in underwriting profit (driven by a strong 22% YoY increase in GWP) being offset by fair value losses of Rs. 5.2mn (vs. fair value gains of Rs. 47.5mn in the corresponding quarter last year) on the company’s equity investment portfolio, which is heavily weighted towards banking and diversified counters. Motor GWP grew by 10% YoY in 3QCY17 (+9% YoY in 9MCY17), while non-motor GWP rose by a significant 81% YoY (+14% YoY in 9MCY17) on the back of renewal of fire and miscellaneous policies of a large client during the quarter, which were renewed on an annual basis in 2Q last year. PINS’s combined ratio remained unchanged YoY at 96% for 9MCY17 - the company’s claims ratio improved from 73% in 9MCY16 to 71% in 9MCY17, while its expense ratio increased ~2ppt YoY to 25% on the back of business expansion related expenses (in-line with the company’s plan to increase its share of non-captive business in the retail & SME segments).

 

With 9MCY17 earnings at Rs. 589mn (+30% YoY), we conservatively project full year earnings of Rs. 739mn for CY17, +12% YoY, supported by expected healthy premium growth and a continued strong investment yield, with ~50% of IPO funds having been locked into debenture issues offering interest rates of ~11%.Our channel checks suggest that sector wide leasing demand slowed down in October, with many consumers choosing to defer purchases until presentation of the 2018 budget proposals in November 2017, due to an anticipated reduction in import duties on selected vehicle categories. In the event of import duty reductions, motor insurers should benefit in CY18 from the subsequent increase in leasing demand. It is, in our view, too early to assess the potential longer term impact to the GI industry of recent amendments to the Motor Traffic Act, which make police reports mandatory for motor insurance claims. Proposed tax changes on interest income from corporate debt and government securities in the Inland Revenue Act are, however, expected to negatively impact the investment income of all insurers w.e.f CY18; investments in government securities and corporate debt collectively accounted for ~64% of PINS’s investment portfolio as at end Dec 2016. At its current price of Rs. 24.50, PINS trades at a P/BV of 1.7x (based on NAV as at end September 2017) and at a CY17E P/E of 6.6x, at a premium to some composite insurers in our insurance sector coverage universe.