CIC Insurance Group Limited (NSE: CIC), released their FY15 results for the period ended 31st December 2015, with the following highlights:
Marginal Growth on Bottom Line of 4.4%; Attributable to a 4.8% Decline in Total Income
CIC Group Ltd posted a 4.4% rise in after-tax profits to KES 1.14Bn, attributable to a 4.8% decline in total income despite the expenses plunging by 5%.
Net premium income decreased by 12.9% y/y to KES 12.31Bn in FY15 from KES 10.73Bn in FY14. This was as a result of losses in the group life- and medical business line, which was attributable to exit of large loss making accounts.
Investment income increased by 46.2% y/y to KES 1.54Bn.
We, however, noted an increase in equity investments (to 6.2% of total invested assets) which the company attributed to their long term outlook in the equities markets. Government securities went up by 28.4% which is reasonable given the current rates in the markets.
Moreover, we noted a decline in deposits to financial institutions (FY15; 35%), perching at 27.9% of the total invested assets. The investment portfolio, was stronger than FY14, growing by 18% to KES 5.42Bn.
Profits from associates declined significantly by 102.1% due to various economic challenges in Takaful insurance and Malawi. The management is however assertive of a positive contribution in the long term.
Due to the marginal growth in CIC’s profitability, RoE remained low from 15.1% in FY14 to 14.8% in FY15 whilst ROaA stood at 4.7% in FY15.
Net Loss and Combined Ratios Stabilized at 57.6% and 98.8%, (respectively) in FY15
Net loss ratios went down to 57.6% from 64.64% in FY14 on the back of a 15.7% drop in claims expense. However combined ratios soared to 98.8% in FY15 mainly attributable to a 21.2% jump in commission’s payable. Going forward, we expect the combined ratios to go below the 90% mark followed by the company’s focus on; i) Improved claims management, ii) Shedding of unprofitable contracts and iii)
Improving efficiencies through investment in technology.
In addition, improved cessation ratio to 15.1% in FY15 will shield the company from a higher claims risk exposure. We noted an increase in the cessation ratio from 7.88% in FY14 to 15.11% in FY15 and thus expect dwindling changes in outstanding claims, pushing claims ratio lower in FY16.
Outlook: Positive Outlook
Going forward, we expect CIC’s focus on growing the general business ( inclusive of the medical class) coupled by keen focus on growing life business –in both individual life and pension business; to increase the momentum in underwriting profitability, offering room for recovery on the gross premiums. In addition, investment in technology will aid in enhancing their underwriting abilities in the classes that are heavily affected by fraud. Moreover, with the current asset mix in equities, property and deposits with financial institution, we are positive that it will enhance investment income, further propping up total income growth.
Valuation
Based on our expectations, we reiterate our HOLD recommendation on CIC with a target price of KES 6.70. The share is currently trading at P/E and P/B of 13.8x and 2.05x in comparison to the industry average of 12x and 2.05x. The company announced a final dividend of KES 0.10 with the book closure slated for 06th May 2016.
By Genghis Research.