Bangkok Life Assurance
Promising outlook
Bangkok Life Assurance Plc (BLA)
Investment thesis
We have trimmed our FY12 earnings forecast by 5.4% to Bt3.5bn to reflect higher provisioning for the life policy reserve than earlier modeled. BLA plans to reduce provisions for its life policy reserve to 65-67% of total premiums next year from its FY12 guidance of 67-68% after achieving greater economies-of-scale for high-margin products. We, however, maintain our FY13 profit forecast at Bt4.5bn, up 27% YoY. Given new product launches and the favorable industry outlook, our BUY rating stands. We have also rolled over our BLA investment horizon to YE13 and arrived at a new target price of Bt57 (pegged to YE13 EV of Bt23.8 and VNB of Bt33).
Concentration on high-margin products continues in 4Q12 onward
9M12 total premiums grew 17% YoY to Bt26.8bn, in line with the industry. BLA’s focus on high-margin products, will keep its provisioning for the life policy reserve high in 4Q12 onward, due to the fact that the most popular whole life products are now single-premium policies (which normally require high provisions for year-one and much lower provisions thereafter). Additionally, in October BLA launched new endowment products, Gain 1st 350 and BLA Permpoonsup.
Well managed ROI
The firm posted an ROI of 5.3% for 3Q12, close to the second-quarter number, led by an investment gain of Bt118m and a well-managed investment portfolio. Management has set a modest ROI target of 5.0% for both FY12 and FY13 (below our FY12 and FY13 ROI assumptions of 5.3%). We believe BLA’s ROI would have scope to rise if the BOT’s policy interest rate were to increase and from gains from securities trading.
Provisioning policy of 65-67% for next year
Note that 9M12 life policy reserve provisioning was equal to 68% of total premiums compared with 60% in 9M11. BLA plans to set provisions for its life policy reserve equal to 65-67% of FY13 total premiums, down slightly from its target range of 67-68% for this year. The implication is that BLA should post much better underwriting profit numbers for FY13 than for FY12. We maintain our FY13 provisioning projection at 65% of total premiums.
Risk-based capital has room to rise
BLA aims to reduce the assets/liabilities mismatch (ratio 9.6yrs/15yrs) by 1.5-2.0 years. That would be expected to push up its CAR to 300% from 274% currently. Note that the Office of the Insurance Commission has a minimum CAR requirement for life assurance firms of 125% for YE12 and 140% for January 1, 2013. BLA’s current CAR is far above that requirement.
