Thaire Life Assurance

Thaire Life Assurance Plc (THREL) 

Investment thesis

We expect THREL to sustain profit growth through FY15, driven by rising assurance premium revenue, a stable ROI and a lower combined ratio. Our FY15 earnings projection stands at Bt459m, up 34% YoY. Given the favorable outlook, our BUY rating stands with a YE15 target price of Bt19.8, pegged to value of new business (VNB) of Bt15.36./share and embedded value of Bt4.44/share. 

Premium growth outlook

We conservatively forecast THREL’s FY15 life assurance premium growth at 12% following about 14% in FY14. That would be below the Thai Life Assurance Association’s industry growth projection of 13-14%. But there is scope for upside, led by non-conventional products. THREL’s total premiums are categorized into conventional and non-conventional products in the proportions 70:30. We conservatively model that in FY15, premiums for non-conventional products will rise 20% YoY and premiums for conventional products by 9%. Note that management guides that the firm’s life assurance reinsurance market share will remain in the 23-24% range in FY14 and FY15.

Anticipate combined ratio range of  71-73% in FY15, down from FY14 

THREL expects an FY15 combined ratio of 71-72%, down from an expected 75-77% in FY14, attributable to lower claims on non-conventional products (life assurance for senior citizens), which were launched during the last four years. We assume combined ratios of 78% in FY14 and 75% in FY15, slightly above the management guidance.

FY15 ROI target at about 5% for FY15

Given stable growth in total premiums in 9M14 and 4Q14, we expect earning assets (mostly fixed-income instruments) at YE14 to post 16% YoY expansion to Bt1.8bn, in line with industry growth. Given a rising SET, THREL’s ROI (excluding investment gains) should be reported at 3.7% for 4Q14. We expect FY14 ROE of 3.5% (excluding extra gains), which would be below management guidance. THREL’s FY15 ROE target is not less than 5% (our assumption is 5.2%).

Model for high 4Q14 profit growth, led by a low combined ratio

We expect THREL to deliver 4Q14 earnings of Bt85m, up by 18% YoY and 50% QoQ%, driven by a well managed combined ratio (mostly underwriting expenses/commissions). The 4Q14 combined ratio should post a decline to 78.5% from 89% in 3Q14 and 78.7% in 4Q13. We also expect 4Q14 premium growth of 20% YoY (in line with industry growth), led by non-conventional product sales.