3 May 2022

EGL 1Q2022 Results: Earnings rise on strong revenue outturn

In brief

EGL published its unaudited 1Q2022 results on Thursday last week. The insurance behemoth posted a 24.5% y/y rise in profit after tax on account of strong revenue outturn. However, the group continued to register steep increases in claims and benefits, partly reflecting the recent consolidation of Acacia Health Insurance and recent inflationary pressures.

Performance: Profit rise on robust revenue growth

  • Profit after tax rose by 24.5% y/y to GHS 42.2m on the back of strong revenue performance
  • Net investment income increased by 17.6% y/y supported by growth in investment securities and favorable yields
  • Net insurance premium increased by 29.0% y/y to GHS 232.1m
  • Insurance benefits and claims grew by 42.5% y/y to GHS 122.9m driving the claims ratio up by 2.3pp to 71.1%
  • The expense ratio declined by 1.7pp y/y to 42.9% as net income growth outpaced the increase in operating and commission expense

Outlook: A mix of headwinds and tailwinds

  • We continue to side with management’s bullish forecast on the group’s net income, which is estimated to reach GHS 2.0b by 2024. Notably, we expect net investment income to improve considerably as the group’s portfolio of debt securities is re-balanced to take advantage of rising rates on fixed income securities
  • We also expect the growth in premiums to remain robust supported by the general increase in economic activity
  • However, we take note of the impact of increased inflationary pressures on disposable income and its implications for the life industry
  • We also take note of the surge in net benefits and claims in 1Q2022 which we attribute partly to the recent consolidation of Acacia Health Insurance. Looking ahead, the rise in benefits and claims witnessed in the first quarter may persist in the subsequent quarters should inflation remain high coupled with further depreciation of the Cedi
  • Additionally, inflationary pressures could drive up operating expenses and stifle earnings momentum
  • We also maintain our cautious stance on the trajectory of the change in life-fund liabilities, as we may see higher provisions for investment linked products coming through from improved investment returns from the general rise in interest rates

Valuation: Under Review 

  • EGL is trading at a P/B value of 0.6x. The embedded value of Enterprise life was estimated at GHS 731.2m (-5.7%y/y) as at FY2021. We intend to re-initiate coverage in 2H2022