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High claims threaten Trust Islami Life’s business

Niaz Mahmud
15 May 2023 00:00:00 | Update: 15 May 2023 00:21:49
High claims threaten Trust Islami Life’s business

The financial situation of Trust Islami Life Insurance Limited, a newly listed company, is indicating that the insurer may face a serious blow to its business sustainability, as the company’s claims ratio was very high in the past five years.

Meanwhile, the fourth-generation life insurer’s re-insurance percentage remains very low, another financial risk for the company which could be detrimental to its profitability in the long effect, as per a report prepared by EBL Securities, a leading stockbroker.

The insurance firm’s claims ratio was in a growing trend in the past five years—from 2.2 per cent in 2017 to 18.3 per cent in 2021.

Moreover, with the projected maturity of endowment policies to be started in 2024, the newly listed life insurer is expected to face a further increase in net liability owing to the initiated claims in the coming years, as per the EBL Securities study.

Its re-insurance percentage is very low with 0.7 per cent of gross premium during the first half of the calendar year 2022, which is also an indicator of high business risk for the company.

The company’s core business possesses an inherent volatility risk as the claims made and premiums collected each year could vary significantly from year to year, EBL Securities stated.

Moreover, the current economic headwinds might adversely affect its performance through policy surrenders and lower premium generation.

The net premium generated by the insurance and the balance of the life insurance fund of Trust Islami Life is much lower than those of other listed life insurers, implying that the depth and size of the company’s business are materially lower in comparison to those of the peer firms.

Moreover, the company had a very small surplus in its life insurance fund of around Tk 73 lakh in H1 of 2022, which raises the risk of an actuarial deficit for the company in the future, according to the EBL Securities report.

Trust Islami Life Insurance Limited was established in February 2014. The publicly traded insurance company provides a range of life insurance products to its customers, currently offering 18 different plans.

The company witnessed an increase in its life insurance fund in the third quarter which ended on September 30, 2022.

As per its unaudited third-quarterly financial statements, the insurer’s life insurance fund had reached Tk 6.4 crore in the July-September quarter of 2022, which was almost double than the figure of Tk 3.4 crore made in the same quarter of the previous year.

The insurer’s total life insurance fund outlay stood at Tk 18.7 crore as on September 2022, which was Tk 10.5 crore till September 2021.

The company’s pre-IPO net asset value (NAV) per share was Tk 11.04 till September last year, but the figure would be Tk 6.62 considering its post-IPO paid-up shares.

The insurer had maintained the same number of pre-IPO paid-up shares of 2.4 crore for the period that ended on September 30 last year. However, it is reported that the post-IPO paid-up number of shares would be 4 crore.

The life insurer received approval from the Bangladesh Securities and Exchange Commission (BSEC) on January 25 this year to raise a fund worth 16 crore through an IPO under the fixed price method.

From the IPO proceeds, the company is going to invest Tk 8.51 crore in FDR and Tk 3.65 crore in Treasury bonds.

Moreover, around 20 per cent of the fund will be invested in the secondary market, which will increase the company’s investment in the capital market by 63.5 per cent. Hence, these investments are likely to have a positive impact on the contribution from investment income to the total income of the company, EBL Securities said.

Around 80 per cent of the life insurer’s revenue comes from Ekok Bima (ordinary insurance), which has two components— the first-year premium and the renewal premium. The company currently has more than 45 branches and service centers across the country.

The company’s share trading started on Thursday and closed at Tk 12.10 per share on the trading floor of the Dhaka Stock Exchange (DSE) on Sunday.