UA reports subdued performance in 2018, but upbeat on future prospects

Union Assurance PLC (UA) reported subdued bottom line performance for the period ended December 31, 2018 despite the company recording higher top line and investment incomes from its financial investment portfolio as interest rates rose.

The life insurance arm of the John Keells group had a 15 percent growth in its gross written premiums to Rs.3.34 billion during the Octoberdecember quarter (4Q18) over the same period, last year. The investment income jumped 70 percent year-on-year (YOY) to Rs.1.60 billion, which pushed the total net revenue of the company to Rs.4.66 billion, up 25 percent YOY. Sri Lanka’s long-term or life insurance industry is facing stiff competition with some large local and foreign players fighting for a bigger slice of a very thin market.

However, insurers pin hopes on the still insignificant penetration levels and expects the rising consumer wealth, increasing sophistication, increasing awareness on risk mitigation and ageing population would drive the growth.

“Rising consumer wealth and an ageing population will drive demand for protection and retirement solutions which life insurers are well positioned to provide,” Union Assurance Chairman Krishan Balendra said.

The company reported operating profit of Rs.1.24 billion, compared to Rs.7.05 billion a year ago. The large diverging results between the two periods stemmed from a one-off surplus transfer of Rs.3.3 billion, which boosted profits in 2017, the financials showed. The company paid benefits and claims of Rs.729.9 million during the quarter, down from Rs.995.6 million a year earlier period.

Meanwhile, the company reported earnings of Rs.17 a share on total net profit of Rs.1.00 billion for the three months under review, compared to Rs.7.12 billion in earnings reported during the same period last year.

For the full year ended on December 31, 2018, Union Assurance reported Rs.55.05 in per share earnings on total earnings of Rs.3.24 billion, compared to earnings of Rs.7.38 billion in 2017. Even after stripping out the impact from the one-off surplus transfer, the company has reported 19 percent decline in earnings, compared to Rs.4.0 billion earnings in 2017. However, the before tax profits were Rs.2.13 billion as the company recognized a tax reversal of Rs.1.11 billion in 2018.

The company’s benefits an claims rose sharply from Rs.2.67 billion to Rs.3.35 billion due to maturity and surrender payouts resulting from challenging economic conditions.

The company’s gross written premiums rose 11 percent to Rs. 11.24 billion in 2018. The company now has a life fund of Rs.30.6 billion. The company’s agency channel generates the major share of the revenues and profits. The company undertook several initiatives to transform this channel. Meanwhile, the company is also pushing its bancassurance channel turning its mere distribution agreements to more strategic ones.

UA is operating with a view to become the largest digital insurer in Sri Lanka and towards this the company invested as much as Rs.800 million to upgrade its core IT system which went live in August. John Keells Holdings has a 90 percent shareholding in the company.