United Overseas Insurance Limited’s Latest Earnings: Bright Spots Seen Despite 25% Drop In Profit

The aptly-named insurance services provider United Overseas Insurance Limited (SGX: U13) announced its fiscal first-quarter results yesterday evening.

The reporting quarter appears to be a mixed bag as United Overseas Insurance saw a 25% year-on-year drop in its net profit. But upon closer examination, there are other positives to takeaway.

Solid underwriting performance

The company’s underwriting profit grew in the quarter. With lower net claims incurred and a higher net commission, the insurer’s underwriting profit expanded by 22.7% year-on year-to S$8.4 million. This is commendable given that gross premium written only managed to climb by 3.7% to S$30.4 million.

The underwriting results highlights the ability of United Overseas Insurance’s management to underwrite profitable policies.

Bad quarter for investment

In general, an insurance company is made up of two business segments: The underwriting segment and the investments segment.

For the reporting quarter, United Overseas Insurance experienced some heat on the investments front. The company recorded a net loss of S$43,000 from its investment segment, down from a profit of S$4.3 million in the same quarter a year ago. This was mainly due to exchange losses of S$3.7 million from the bond portfolio.

The good thing is that these losses are unrealized exchange losses that appear due to volatile currency movements these past few months.

All told, United Overseas Insurance had recorded a net profit of just S$7.05 million in the quarter, down 25% year-on-year as mentioned.

Sound balance sheet

A key metric to note for an insurance company is its net asset value. Despite a loss from its investment segment, United Overseas Insurance still saw a 1.2% increase in its net asset value per share from a year ago. The company ended the reporting quarter with a net asset value per share of S$5.21.

Moreover, the company’s balance sheet has improved slightly. Its leverage ratio (assets over equity) had declined from 1.88 at end-March 2015 to 1.77.

Foolish Summary

United Overseas Insurance had a mixed start to 2016. The company ended the first-quarter of the year with lower profit, but it still has a sound balance sheet and has displayed a conservative approach to underwriting. The company is currently trading at 0.92 times its book value and offers a 3.1% dividend yield.

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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 writer Stanley Lim owns shares in United Overseas Insurance.