Bangkok Life Assurance
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Increase premium reserve for benefits in 2015 BUY
Bangkok Life Assurance Plc (BLA)
Reverse to loss in 3Q14 due to impact from policy rate
BLA reported 3Q14 earnings result with net loss of B881m, reversing from
B169m net profit in 2Q14 and falling significantly from B1.10bn net profit in
3Q13, because of B3.26bn loss from the insurance business in this quarter.
Countercyclical provision was raised as much as B2.24bn in this quarter,
increasing the ratio of premium reserve to net premium income to 98.2%, the
quarterly high (excluding the countercyclical provisioning, the ratio would
decrease from 68.2% in 2Q14 to 67.2% in 3Q14, in line with BLA’s target of
67-69%). The substantial increase in the countercyclical provision resulted
from decreasing market yield curve. While the value of the company’s assets,
mostly investment assets; 90% of which are held-to-maturity investments, is
estimated by a capital price and thus not benefits from the decreasing policy
interest rate, the value of insurance liabilities is estimated by fair value.
Accordingly, the decreasing policy interest rate will result in the amount of
Gross Premium Valuation (GPV) over the amount of Net Premium Valuation
(NPV), leading to the aforementioned reserve increase in 3Q14.
- Cut FY2014 forecast by 65%
We revise down FY2014 earnings forecast by 65% to reflect a more-thanexpected
decrease in the policy interest rate. However, we maintain our
projection of earnings from the core business since there is nothing worrying.
9M14 net life insurance premium income grew by 43.6%yoy, beating the
company’s full-year target of 25.2%yoy and the sector’s average growth of
15.3%yoy. First year premium income soared 106.9%yoy, versus 49.0%yoy
targeted, while renewal year premium income increased 18.6%yoy, versus
16.3%yoy targeted. In 9M14, BLA has been able to increase its overall market
share to the fourth of the market rankings (following AIA, MTL, and TLI) or
11.85%. Regarding the products, the company has been focusing more on
long-term products through selling agents for its higher margin and lower
burden on capital; according to RBC, BLA’s current capital adequacy ratio of
282% is too high.
- Long-term investment. Correction in 2014 but better profit in 2015
We recommend BUY. The share price has substantially undergone correction
until it has over 26% upside from 2014 fair value of B66.35 (with 2015
embedded value of B23.79 and 2015 VNB of B42.56).
