What Investors Need to Know about United Overseas Insurance Latest Earnings

United Overseas Insurance Limited (SGX: U13), or UOI, is a subsidiary of of United Overseas Bank Ltd (SGX:U11), which is also known as UOB. UOI provides its general insurance services through the customer network of UOB. The insurer reported its third quarter results last Friday. You can catch the previous quarter’s report here.

The typical insurer makes money in two ways. The first way would be to collect more premiums than it pay out in claims. This gap makes up the underwriting profit. The second way is through investment of the collected premiums. As shared by my colleague Stanley in his previous article, insurers would purchase equities and bonds using the collected premiums. Any gains would make up the investment profits.

Underwriting Results

Gross premiums written (the revenue of the company) were down 6.7% to $22.7 million in the third quarter of 2014 compared to the same quarter last year. Net earned premiums, though, reduced by a lesser 2.3% to $10.6 million. Net of expenses, underwriting profit came to $3.6 million, a 7.4% drop on a year on year comparison.

The main culprits of expenses was a 19.4% increase in net claims incurred, and a 18% increase in staff cost. The increase in claims came from Fire and Work injury claims. It is notable that for the first nine months of the financial year 2014, net claims were actually down 6.4%, while underwriting profit was up 0.5% from a year ago.

Investment Results

For the investment side, the non-underwriting income also reduced by 8.4%. Lower disposal of investments, and net fair value losses on unrealized financial derivatives led to the fall in non-underwriting income. As it is with investing, we should look at the longer term record of the company instead of worrying over performances over quarterly periods.

When the underwriting and investment results were put together, overall profit fell by 7.7% to about $6 million for the quarter. Profits for the first nine months of 2014 is still up 19.7% year-on-year, and currently stands at $25.4 million.

Foolish Summary

UOI ended the quarter with $56.7 million in cash and equivalents, and no debt. The management team sounded a cautionary note on the potential risk on the spread of Ebola, alongside “geopolitical and economic uncertainties”. It looks to continue its strict adherence of the company’s judicious management policy to ensure consistency in profits.

At its closing price on Friday of $4.66, UOI is priced at slightly below its book value and has a dividend yield of 3.7%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.