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3 Things Investors Should Know About United Overseas Insurance Limited Now

United Overseas Insurance Limited (SGX: U13) is an insurance company that focuses on general insurance and reinsurance businesses. General insurance covers a broad spectrum, among which are fire, marine, motor, engineering, general accident, and more.

The company’s shares have been a decent market-beater over the past five years. In that period, United Overseas Insurance has seen its stock price increase 45% while the Straits Times Index (SGX: ^STI) is up by less than 10%.

Here are three things about United Overseas Insurance’s business that investors or potential investors in the company may want to know about:

1. Latest results

Insurers tend to underwrite insurance policies, collect the premiums (known also as the ‘float’), and invest those premiums in financial assets. Because of that, there are typically two sides to an insurer’s business: The insurance aspect, and the investment aspect.

Here’s a table showing how United Overseas Insurance’s business fared in the first nine months of 2016:

United Overseas Insurance income statement table
Source: United Overseas Insurance Q3 2016 earnings

As you can see, the company had posted stronger operational numbers for its insurance business. Its gross premium written had increased by 1.7% whilst its net claims incurred declined by 22.4%. Both factors had helped the company post a 21.6% increase in underwriting income.

But, the insurer’s overall pre-tax profit had fallen by 18.5% due to weaker results from the investments side of its business. There was a sharp 69.1% decline in United Overseas Insurance’s non-underwriting income stemming from the losses from the sale of certain investments and impairments on available-for-sale investments.

2. A historically low valuation

As insurers are considered financial institutions, the price-to-book (PB) ratio can be a good gauge of an insurer’s value.

At its current share price of S$4.73, United Overseas Insurance has a price-to-book ratio of 0.88. As you can see in the chart below, this is a valuation that’s near a five-year low:

United Overseas Insurance's PB ratio over past 5 years
Source: S&P Global Market Intelligence

For another perspective, the insurer’s PB ratio is also lower than the SPDR STI ETF’s (SGX: ES3) PB ratio of 1.2. The SPDR STI ETF is an exchange-traded fund that mimics the fundamentals of the Straits Times Index.

3. The presence of a major owner

As of 3 March 2016, United Overseas Bank Ltd (SGX: U11) owns 58.4% of United Overseas Insurance.

Given its majority stake in United Overseas Insurance, United Overseas Bank can dictate the overall financial and operating policies of the insurer. As such, minority investors in United Overseas Insurance would need to be comfortable with the power wielded by United Overseas Bank.

One positive aspect of this relationship between the two financial institutions is that United Overseas Insurance has the ability to access the customer network of United Overseas Bank.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of United Overseas Bank. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.