Know the financial performance of leading life insurance company of Nepal - Nepal Life Insurance Company

Introduction:

Nepal Life Insurance Company was established under the Company Act 2053 and Insurance Act 2049 as a public limited company on 2058/01/21 (04/05/2001). With the aim to cater to the financial and social needs of every segment of society by designing differentiated and innovative insurance instruments, it is a foremost life insurance company established by private investors. It is headquartered at Heritage Plaza, Kamaladi, Kathmandu.

Nepal Life Insurance Company stood the largest player in the industry (market share of 30% in terms of Gross Premium and market share of 29% in terms of new business premium) as of Ashad end, 2077. The company has insured itself with a well-known Reinsurance company “Hannover Re life Reinsurance Company”, Germany and Nepal Reinsurance Company Limited.

Financial Highlights:

 * unaudited report  

Nepal Life Insurance Company, in 5 years’ time frame, has grown it's Gross Premium Written (GPW) to Rs. 16.17 Arba which is a growth of CAGR 19.07%. In FY 2018 the company has improved its market share to 33% in terms of Gross premium collection. With a higher risk-taking capacity of life insurance companies itself, the company has retained about 97%-98% of the total premium collected.

The company has been able to increase its Gross premium to Rs. 18.67 Arba securing 30% of the market share in FY2020, as per Q3 report published by the company. In the first premium, the company has earned 34% of the total First Premium earned and 57% in the renewal of the premium in FY2020, Q3 report.

Looking at the business concentration of NLIC, As of FY 2075, Endowment Life insurance Policy has highly contributed to Gross Premium Written (GPW) with 22% of the total business followed by Jiwan Sahara Plan which stood at 9.41%. Child Endowment Plan has contributed around 6.78% to the total business.

Looking at the Net Profit growth of Nepal Life insurance company (NLIC) it has grown at a CAGR of 18.57% in the last 5 years. With the increase in business and proper allocation of investment which has contributed to total revenue at an average of 17% has a higher impact on the bottom line.

In the Q3 of FY2076/2077, the company earned a Net Profit of Rs. 46.75 crores. The decrease in net profit in un-audited data is mainly due to the non-inclusion of profit generated from the actuarial valuation of the life insurance fund.

Key Ratios:

* Unaudited Figure

Despite the annual increase in Net claim payment of the company, the claim ratio is relatively lower which stood at an average of 19% for 5 years. The claim ratio of the company is relatively lower because of higher growth in the gross premium of the business.

*lower EPS for FY 2075/76 and FY 2076/77 is mainly due to non-inclusion of profit generated from the actuarial valuation of life insurance fund in net profit.

Company’s earnings per share decreases for mainly two reasons:

1. Due to the decrease in revenue of the business or increasing cost of doing the business which impacts on the bottom line
2. Increasing the capital base of the business

There has been a decrease in the earnings per share (EPS) which might lead many investors in different conclusions. But the catch here is the change in the capital structure of the company. Over time the company’s capital base has increased which has led to a higher number of shares outstanding in the market. Due to this, the earnings per share has been lower.

For Nepal Life insurance company which has a longer track record, just looking at the earnings per share does not give us the full picture. NLIC is one of the oldest companies in Nepal providing life insurance products and it has collected a huge amount of insurance fund; around Rs. 81 Arba as of FY2020, Q3 Report published by the company. This fund again can be used in different instruments which creates cash flow for the company in the future.

Since the minimum requirement of the solvency margin is 1.50x, the company has been able to maintain a healthy solvency margin of 3.13x which is 300% higher than the regulatory requirement as of FY 2074/2075. This has led the company to meet its financial obligation.

Due to the higher capital injection for NLIC, its Return on Equity has decreased for the past 5 years which may get investors to question themselves against the company’s ability to efficiently utilize the shareholder’s fund. But what investors have to keep an eye on is the growth in the net worth of the company mainly due to capital injection.

Similarly, the company’s ability to utilize the asset is comparatively decent than its competitors which have hovered around 2-3%.

The company’s net investment of Rs. 58.95 Arba earned Rs. 5.27 Arba which has made an effective yield of around 10% in FY 2074/2075. NLIC’s investment portfolio is highly concentrated in fixed deposits in BFI’s which stood at around 73% of total investment which contributed around 88% in total investment income which is a good return for a net depositor.

Dividend History:

NLIC is yet to announce dividend for the fiscal year 2075/76.

Risks:

Since there is unhealthy competition in the life insurance market due to the increasing number of life insurance companies, NLIC faces a threat from its competitors.

Due to the havoc created by the global pandemic in the economy, the interest rate has been low than before. Being a net depositor in different BFI’s, the falling yield on investment will have an impact on the earnings profile for a few quarters.

With the ever-increasing technological trend in the world, the company always has to be in line with the trend to provide the best services to its valued customers.

Since the company has to diversify its investment to get the best possible return, there is still limited investment opportunity in the country.

Conclusion:

Looking at the current scenario, a global pandemic caused by Covid-19 has increased awareness among people to insure their lives. This has added a huge advantage to the life insurance business. Since, NLIC is ahead of the game which has shown by the report published by the Insurance Board (IB), with attractive bonuses and new products, the company in the near future will be able to tap into the wider market. Considering the life insurance business penetration of just 25% in the country still there is a lot of room for the business to grow.