Latest Earnings From United Overseas Insurance Limited: Tough Times Ahead

On Friday evening, insurance services provider United Overseas Insurance Limited (SGX: U13) announced its fiscal second-quarter results. The company’s fiscal year coincides with the calendar year.

Let’s see how it performed.

Underwriting performance

UOI’s gross premiums written was S$30.7 million in the reporting quarter, representing a slight 0.3% decline from a year ago. That said, net earned premiums still managed to grow by 4.8% year-on-year to S$10.57 million.

With the aid of a big decline in net claims incurred (16.8% fall to S$3.62 million) and slower growth of just 2.6% in management expenses (things such as staff cost, rental expenses etc.), the insurer’s underwriting profit posted 11.1% growth.

Underwriting profit for the reporting quarter came in at S$3.7 million.

Non-underwriting performance

Most insurance companies have two aspects to their business – one is the insurance operation, the other is the investment operation. The investments are usually made with the capital generated by the premiums the insurer has collected over time (this is known in the industry as float); the investments can be in financial assets such as stocks and bonds or in rare cases, entire operating businesses.

For the reporting quarter, UOI’s non-underwriting income dropped by 17.5% from S$2.76 million in the second-quarter of 2015 to S$2.28 million. Big culprits were (1) a 12.7% decline in gross dividends from investments to S$2.6 million, (2) a loss of S$876,000 in the fair value of financial derivatives, and (3) a $372,000 loss from the sale of available-for-sale investments.

These were offset partly by a 19.9% year-on-year jump to S$1.85 million in interest income from investments.

Overall profit picture

To sum up, UOI’s profit attributable to shareholders for the quarter dipped slightly by 1.4% to S$5.02 million. Earnings per share (EPS) followed suit with a 1.4% decline to 32.83 cents for the quarter.

UOI also declared an interim dividend of S$0.03 per share for the reporting quarter, unchanged from the year before.

The balance sheet

UOI ended the reporting quarter with a net asset value of S$5.22 per share. This is a 3.0% increase from the S$5.07 seen a year ago.

The insurer saw its balance sheet weaken slightly from the second-quarter of 2015. Its leverage ratio (total assets over shareholders’ equity) had ticked up from 1.78 to 1.80.

A future outlook

UOI had given a dour outlook in its earnings release. It said:

“The slowing down in regional economies compounded by continuing intense competition will dampen insurance premium growth. Worsening intensity of natural disasters triggered off by climate change may have adverse impact on claims experience under the offshore portfolio.

Economic and geopolitical uncertainties globally especially the consequential impact of Brexit will continue to render it difficult to achieve reasonable investment returns.”

From the comments above, it appears that UOI’s management is anticipating tough times ahead. UOI is currently trading at a price of S$4.78. This gives the firm a price-to-book value of 0.92.

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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 Esjay does not own shares in any companies mentioned.