Pan Africa insurance released its performance figures posting a 57% y/y rise in FY12 EPS to KES 7.27. This came below our EPS estimate of KES 9.97 mainly driven by higher than expected change in contract liabilities. Net written premium jumped 55% to KES 5.126bn. The rise in written premium was driven by both increased new business (+33%) as well as high persistency ratios in recurring businesses. Bolstered by the positive upswing in the equities market last year, other operating revenue jumped 197% y/y with fair value gains moving from a negative position of KES 896m FY11 to a positive position of KES 880m FY12. Net claims and benefits climbed 92% to KES 7.07bn, 4% higher than our estimate due to a higher than expected increase in change in contract liabilities. Claims ratio however declined to 29% FY12 from 38% FY11, as premiums raced ahead of actual benefits and claims paid. Operating expenses on a restated basis fell 14% to KES 1.6bn (actual reported expenses in 2011 were KES 1.4bn but this was restated to KES 1.8bn. Also note that other operating income in 2011 was restated from KES 665m to KES 1.1bn.) Acquisition ratio fell 500bp to 12% an indication of increased direct bookings possibly stemming from increased group life business. Underwriting expense ratio fell to 13% FY12 compare to 17% FY11 driven by a combination of strong top line growth and increased efficiency. The underwriter is in the process of implementing a new administration systems which is likely to improve efficiency further with greatest scope in staff costs. The groups reported EV increased 8% to KES 45.83 per share. The underwriter declared a first and final dividend of KES 3, 50% higher than the previous year.
Pending review of our FY13, FY14 & FY15 forecasts, we retain our Buy recommendation. We expect Pan Africa to continue to outperform the sector in premium growth going forward underpinned by increased product innovation. (Standard Investment Bank)