A Look Into the Comparative Analysis of Important Metrics of Life Insurance Sector in Q4; Which Company Fits in Your Investment Criteria?

The Nepalese life insurance industry got momentum in the last decade. The growth of the market has improved as compared to the previous decade, especially after the Earthquake in 2015 and the coronavirus outbreak-2019.

Life insurance sector is characterized as an oligopoly market where only a few companies dominate the entire market. The major factor to be considered by the customers and authorities that whether the market players are doing business in fair competition or not. 

The concentration ratio shows that decade-old insurance companies have more than two third the market share while rest of the companies have occupied lower market share. Also, there is the domination of the Nepal Life and LIC-Nepal over rest of the companies.

In this article, we will be focusing on the key parameters from the quarterly report published by all the life insurance companies which helps you decide which company fits in your investment criteria

So, let’s study the fourth-quarter performance of the fiscal year 2078/2079 of life insurance companies.   

Net Profit:

National Life Insurance Company Limited (NLICL) has reported the highest amount of net profit amounting to Rs. 40.89 crores against its competitors. NLICL is followed by Jyoti Life Insurance Limited (JLI) which has reported a profit of Rs. 23.92 crores. Prime Life Insurance Company Limited (PLIC) has reported a profit of Rs. 22.01 crores making it the third-highest.

In terms of non-listed companies, Reliable Nepal Life Insurance Company Limited (RENLICL) has reported the highest net profit amounting to Rs. 27.49 crores. This is followed by  Met-Life American Life Insurance Company Limited (ALICO) with a net profit of Rs. 24.77 crores.

Out of 19 life insurance companies, 7 companies have reported a decline in their net profit.

This is to be noted that the net profit figure of all companies is without the profit generated from the actuarial valuation of assets and liabilities. Which is reflected only in the audited report of the company. 

Paid-up Capital:

Nepal Life Insurance Company Limited (NLIC) has the highest paid-up capital among its peers which amounts to Rs. 8.20 Arba. National Life Insurance Company Limited (NLICL) has the second-highest paid-up capital amounting to Rs. 4.03 Arba. Similarly, Prime Life Insurance Company Limited (PLIC) has the third-highest paid-up capital which amounts to Rs. 2.78 Arba among the listed companies.

In terms of non-listed companies, Sun Nepal Life Insurance Company Limited (SNLICL) has the highest paid-up capital amounting to Rs. 2.24 Arba.  

Reserve & Surplus and Contingent Fund:

In the fourth quarter of this fiscal year, Union Life Insurance Company Limited (ULI) has reported the highest reserve and surplus which amounts to Rs. 1.07 Arba. Similarly, Jyoti Life Insurance Company Limited (JLI) has a reserve of Rs. 77.51 crores.

Met-Life American Life Insurance Company Limited (ALICO) among the non-listed has reported the highest reserve of Rs. 2.62 Arba.

NOTE: Investors should always compare companies with which it is applicable to compare. Reliance is a relatively smaller company that started its operation only a few years ago. So, investors are requested to compare companies of relatively similar size.

Life Insurance Fund:

Insurance Fund is a total fund collected from the premium paid by the clients for certain coverage. Unlike non-life insurance companies, the insurance fund of life insurance has to be paid back after the expiry date of the coverage. This fund can be invested in a low-risk investment.

Among the listed companies, Nepal Life Insurance Company Limited (NLIC) has the highest insurance fund of Rs. 1.36 Kharba. NLIC is followed by Life Insurance Corporation Nepal Limited (LICN) which has a fund of Rs. 93.63 Arba. Similarly, National Life Insurance Company Limited (NLICL) has the third-highest insurance fund amounting to Rs. 51.16 Arba.

The total insurance fund of all the life insurance companies combined is Rs. 4.65 Kharba till the fourth quarter.

Net Premium:

Net premium is a core business revenue for life insurance companies after ceding some portion of the premium to Re-insurer.

Despite many challenges and competition, insurance companies have been able to increase their business volume. Among listed companies, Nepal Life Insurance company Limited (NLIC) has reported a net premium worth Rs. 34.99 Arba. Life Insurance Corporation Nepal Limited (LICN) has reported a net premium of Rs. 18.14 Arba making it the second-highest.

Among non-listed companies, Rastriya Beema Sanstha (RBS) has reported the highest net premium of Rs. 8.39 Arba. This is followed by  Citizen Life Insurance Company Limited (CLICL) with a net premium of Rs. 5.01 Arba.

Net Claim:

Among the listed companies,  Jyoti Life Insurance Company Limited (JLI)  has the least amount of net claim payment in this quarter which amounts to Rs. 0.28 Arba. This is followed by Prahbu Life Insurance Limited (PLI) which has a net claim payment of Rs. 0.43 Arba. Similarly, Sanima Life Insurance Company Limited (SLI) has the third-lowest claim payment in this quarter with an amount of Rs. 0.44 Arba.

In this quarter, life insurance companies paid out a total of 50.55 arba of claims combined.

Likewise, out of non-listed life insurance companies, Mahalaxmi Life Insurance Company Limited (MLICL), has the least amount of net claim payment in this quarter which amounts to Rs. 0.19 Arba.

Number Of Policies:

Among the listed insurance companies, NLICL is leading the chart with 15.96 lakh policies, whereas, from the unlisted ones, RENLICL has sold maximum 50.75 Lakh Policies.  

Investors of all life insurance companies should understand the quality of insurance policies is important rather than number of insurance policies. Moreover, these policies might include scheme such as foreign employment insurance policy which provides less net premium so some insurance companies do not prefer such policies. Hence, judging an insurance company based only on number of insurance policies would be absurd.

Provisions for Unexpired Risk, Unpaid Claims, and Losses (Investment):

As per the provisions for unpaid risk for the fourth quarter of 2078/79, NLIC is in the lead with an unpaid risk of Rs. 31.33 Crores. Also,  from the non-listed insurance companies, RENLICL has the highest unpaid risk of Rs 70.39 Crores in the same quarter. Likewise, LICN has a unexpired risk of only Rs. 80 Lakhs in terms of listed companies.   

In terms of unpaid claims for unlisted companies, RBS has the highest amount of unpaid claims which amounts to Rs. 2.83 arba and for listed companies, NLIC has has the highest unpaid claims of Rs. 1.71 Arba.

Similarly, SLI reports lowest investment losses of Rs. 34 Lakhs in the listed sector, where as MLICL in the non listed sector has investment losses of Rs. 87 Lakhs.

Major Indicators:

Earnings per share:

As per the reports published by the companies for this quarter, National Life Insurance Company Limited (NLICL) has the highest EPS of Rs. 10.13 per share. Jyoti Life Insurance Company Limited (JLI) has the second-highest EPS of Rs. 9.88 per share.

Out of 19 companies, 7 companies have reported their EPS above the industry average of Rs. 9.02 per share.

Net worth Per Share:

In terms of Net worth per share, Union Life Insurance Company Limited (ULI)has reported the highest number with Rs. 155.80 per share. Life Insurance Corporation Nepal Limited (LICN) has reported a net worth per share of Rs. 136.79 per share making it the second-highest.

Among non-listed companies, Rastriya Beema Sanstha (RBS) has the highest net worth per share with Rs. 328.64 per share.

13 companies have reported below industry average net worth per share in this quarter.

Price to Earning (PE) Ratio:

Among the data provided by life insurance companies for Q4, Jyoti Life Insurance Limited (JLI) has reported the lowest P/E ratio of 35.60 times against its competitors. Sanima Life Insurance Company Limited (SLI) has reported a P/E of 43.48 times. Similarly, National Life Insurance Company Limited (NLICL) has a P/E of 56.94 times.

Finally, the table below shows the overall picture with the major indicators of 19 life insurance companies as of the fourth quarter of FY 2078/2079.

NOTE: After being compelled to merge by the regulatory body, the Insurance Board (Beema Samiti), in order to raise their paid-up capital, many life insurance businesses decided to merge with each other. 

According to the rule that specifies life insurance companies must have a minimum paid-up capital of Rs. 5 Arba by the end of Chaitra 2079, nine out of the nineteen life insurance companies chose to merge in order to increase their paid-up capital in the fiscal year 2078/79, making the overall life-insurance companies come down to fourteen.