United Overseas Insurance’s Latest Earnings: Steady Results for the Year

Insurance outfit United Overseas Insurance Limited (SGX: U13) reported its fourth quarter results yesterday.

UOI, which is a subsidiary of United Overseas Bank Ltd (SGX: U11), provides its  general insurance services through the customer network of its parent.

The typical insurer makes money in two ways. The first would be to collect more insurance premiums than it pays out in claims. The gap (if any) between premiums and claims makes up the underwriting profit.

The second is through the returns gained from investing the collected premiums. As my colleague Stanley Lim shared, the collected premiums would be invested into typically equities and bonds. Any gains from those investments would make up the investment profits.

With these as a backdrop, let’s dig into UOI’s latest set of results. You can catch up on the insurer’s report for the previous quarter here.

Underwriting results

For the whole of 2014, gross premiums written (the revenue of the company) was down 1.2% to $108.1 million from a year ago. Net earned premiums, though, was up 1.3% to $44.6 million. Net of expenses, underwriting profit came to $16 million, a 9.7% increase on a year-on-year comparison.

On the expenses side, there was a 10% increase in staff costs. But, a 40% decline in net commissions and a whopping 97.5% drop in foreign exchange losses helped offset the increase in staff costs and contributed to the increase in underwriting profit despite more-or-less flat premiums written.

Investment results

For the investment side, non-underwriting income for the year was up 8.7% to $17.4 million. There were solid investment returns from gross dividends and interest income as well as positive gains from exchange differences. 2013 also included an impairment which made for an easier comparable.

As it is with investing, we should look at the longer term record of the company instead of worrying over quarterly performances.

Foolish summary

When the underwriting and investment results were put together, UOI’s overall profit rose by 2.9% to about $28.2 million for the full year. UOI also ended 2014 with $52.6 million in cash and equivalents, and no debt.

Management recommended a final dividend of 12 cents per share and a special dividend of 2 cents per share. This brings UOI’s dividend for the whole of 2014 to 17 cents per share, unchanged from 2013.

Looking ahead, UOI’s management team sounded a cautionary note about competition intensifying in the domestic market alongside “geopolitical and economic uncertainties.” The insurer looks to continue its strict adherence to its judicious management policy to ensure consistency in underwriting profitability.

At yesterday’s closing price of $4.87, UOI is priced at slightly below its book value and has a historical dividend yield of 3.5% based on its pay-out for 2014.

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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.