Thaire Life Assurance

3Q14 profit missed our estimate

THREL posted 3Q14 earnings of Bt57m, down 55% YoY and 49% QoQ. The result was below our estimate and Bloomberg consensus, due largely to a bigger loss ratio for non-conventional products than expected. The firm also had to pay out an unexpected reinsurance claim of Bt22.4m in 3Q14. Hence, its 9M14 earnings fell 17% YoY to Bt258m, which represents 57% of our old FY14 forecast. 

Results highlights

Premium revenue rose by 6% YoY and 17% QoQ to Bt436m, led by sales of conventional products. Note that THREL’s conventional premium revenue dipped 1% YoY but was up 24% to Bt309m, whereas its non-conventional premium income rose by 29% YoY but only 2% QoQ. The firm set provisions of Bt179m for its life policy reserve (loss ratio+claims) in 3Q14, equal to 41% of total premiums (up by 33% YoY and 35% QoQ). During the quarter, THREL paid out Bt22.4m on an unexpected claim on a credit life reinsurance policy.

Its commission ratio rose to 45.2% from 36.4% in 2Q14 and 30.0% in 3Q13. The rise was due to incurred losses of Bt36m from one of its non-conventional reinsurance projects. As such, THREL’s combined ratio jumped to 86.2% in 3Q14 from 63.2% for the third-quarter of last year and 71.2% in 2Q14. 

ROI rose to 4.9% from 4% in 2Q14, in tandem with trends in the money market and the SET. Investment income was Bt16m, up by 67% YoY and 16% QoQ, due to investment asset expansion and a higher investment gain on the stock market.

Outlook

We expect THREL to deliver better YoY net insurance premium revenue growth for 4Q14, without extra expenses for claims and losses on non-conventional products (as was the case for 3Q14). 

What’s changed? 

The disappointing 3Q14 results prompted us to slash our earnings forecasts by 24% for FY14 to Bt342.9m and by 10% for FY15 to Bt458.6m. The lower projections factor in bigger combined ratio assumptions—from 70% to 78% for this year and from 72% to 75% for next.

Recommendation

THREL is subject to intensifying competition for both conventional and non-conventional business in an unfavorable prevailing environment. There is downside risk to our profit forecasts from a higher combined ratio than assumed. Because of our earnings projection cuts, our YE15 target price falls from Bt22.2 to Bt19.8 (based on embedded value of Bt4.44 + VNB of Bt15.36). But our BUY rating stands.