Performance: Bottom-line performance tanks on higher net benefits and claims

• Profit after tax fell by 17.0% y/y to GHS 121.8m despite strong revenue performance
• Net investment income almost doubled to GHS 249.6m on the back of volume growth, favourable yields on fixed income instruments and the recent rally on the Ghanaian equities market. Net insurance premium revenue increased by 30.2% y/y to GHS 847.8m
• EGL reported a more than 2-fold increase in insurance contract liabilities to GHS 240.7m with insurance benefits and claims rising by 53.8% y/y to GHS 409.2m
• As a result, the claims ratio inched up by 19.1pp y/y to 76.7%
• The expense ratio was little changed at 43.3%. ROaE slipped by 526bps y/y to 15.2%

Outlook: Life fund provisions and claims cloud earnings visibility

• Our views on EGL’s long-term growth prospects remain positive and we expect growth in revenue to remain robust in line with management’s estimates. Net income is expected to reach GHS 2.0b by 2024 according to management’s projection
• The profitability of the non-life insurance business is expected to improve further as the incidence of undercutting of motor premiums is minimized with the introduction of the Motor Insurance Database. We expect the life, pension and funeral businesses to record significant growth amidst the economic recovery
• Acacia health insurance has been fully consolidated into the group. According to management, Acacia contributed GHS 44m and GHS 2.5m to EGL’s net income and profit after tax, respectively, as at 9M2021. Acacia health insurance is the 3^rd largest private health insurance company in Ghana and we expect the health business to drive revenue growth going forward
• We remain cautiously optimistic of the Nigerian business even as management looks to unlock value by building a superior distribution model to capture the retail market
• Management hinted that the recent rise in life fund liabilities partly reflects the corresponding increase in provisioning for investment linked products following the significant increase in investment returns. The rise in benefits and claims was also attributed partly to additional claims from the on-boarding of Acacia Health Insurance as well as claims which could not be filed in 2020 coming through in 2021. We remain cautious about the trajectory of claims and life fund provisions and anticipate further volatility in EGL’s bottom-line performance in the interim

Valuation: Under Review 

• EGL is trading at a P/B value of 0.6x. The embed value of Enterprise life was estimated at GHS 794m as at 1H2021
• We are preparing to initiate coverage on EGL and we intend to publish our rating on the stock in the coming months