Will United Overseas Insurance Ltd Give You A 10% Return?

Founded in 1971, United Overseas Insurance Ltd (UOI) is an SGX-listed insurance company where it provides a few classes of general insurance products such as fire, general accident and marine. Presently, as of 10 April 2019, UOI is worth a total of S$ 443 million in market capitalisation.

In this article, I’ll cover its latest financial results and valuation figures based on its current stock price of S$ 7.25 a share. Thus, here are 11 main things to know about UOI before you invest.

• Insurance Class 1: Fire
  Gross Written Premium (GWP) had increased to S$ 41.6 million in 2018 from S$ 30.1 million in 2009. Its Underwriting Profits (UP) had grown at a faster rate as it doubled to S$ 17.0 million in 2018, from S$ 8.8 million in 2009. This is attributable to lower net claims incurred and a rise in its reinsurance commissions received, particularly over the last 5 years. As such, fire insurance is the largest contributor of profits to UOI in 2018.

Source: UOI’s Annual Reports

• Insurance Class 2: General Accident
  GWP has been on a decline since 2013. It dropped from S$ 67.2 million in 2013 to S$ 58.3 million in 2018. Despite achieving its highest GWP in 2013, UP was at S$ 3.4 million, which is its lowest in the 10-year period. It is due to substantially high claims incurred in that year. Since then, its management has undertaken efforts to improve the portfolio quality of this segment. Net claims incurred has fallen gradually and hence, lifting its UP from S$ 3.4 million in 2013 to S$ 12.9 million in 2016. UP fell to a total of S$ 7.3 million in 2018 as a result of lower GWP in 2018.

Source: UOI’s Annual Report

• Insurance Class 3: Marine
  GWP has been declining from S$ 5.3 million in 2011 to S$ 3.3 million in 2018. The overall contribution on both GWP and UP to UOI is relatively minute.
  
  
  
• Group Underwriting Results:
  Overall, UOI has maintained its GWP at S$ 100 million since 2012, after having a period of growth from S$ 84.5 million in 2009. The flat growth experienced by UOI is due to a cancelling effect where the GWP growth from fire insurance was offset by falling GWP from the general accident and marine division in 2013 – 2018.
  
  UOI has improved its underwriting profit after a dip in 2013. Underwriting profit increased from S$ 14.6 million in 2013 to S$ 24.5 million in 2018. It is attributed to a reduction in net claims incurred and higher reinsurance commissions received.

Source: UOI’s Annual Reports

• Dividends & Interest Income from Investments (D&I)
  D&I grew from S$ 6.2 million in 2009 to S$ 12.8 million in 2016 before it dipped to S$ 11.6 million in 2018. The overall increase in D&I was due to a consistent increase in UOI’s investments, fixed deposits and as well as bank balances for the past 10 years, from S$ 298.7 million in 2009 to S$ 472.7 million in 2018. The following is a breakdown of its assets:
  
  
  

No.	List of Investment Assets	Amount (S$ million)
1	Debt Securities	221.0
2	Unit Trust & Exchange Traded Funds	111.7
3	Equity Securities	76.2
4	Bank Balances & Fixed Deposits	63.9
UOI’s Total Investment Assets	472.7

Source: UOI’s Annual Report 2018

Notes:
UOI’s debt securities bear an effective weighted average interest rate of 3.42% in 2018 (3.47% in 2017).

UOI has placed S$ 47.7 million in fixed deposits. The yield on average 1.35% in interest rates per annum in 2018. (0.91% in 2017).

Source: UOI’s Annual Reports

• Group Profitability
  Overall, UOI had generated an average of S$ 26.4 million in earnings to its shareholders for the past 10 years. The discrepancies in earnings for UOI was caused by fair value gains or losses in financial assets. They are futures & forward contracts and investment assets discussed in Point 5. In that 10-Year Period, UOI had made, on average, S$ 0.435 in earnings per share (EPS) and 10.14% in Return on Equity (ROE). This means UOI has made, on average, S$ 10.14 in shareholders’ earnings from each S$ 100.00 in shareholders’ equity over the last 10 years.

Source: UOI’s Annual Reports

• Balance Sheet Strength
  As at 31 December 2018, UOI has no borrowings, contingent liabilities, and loan capital. It has S$ 378.4 million in shareholders’ equity. UOI has been granted a ‘A+’ (Superior) in financial strength, ‘aa-’ in issuer credit rating, and a stable outlook by A.M. Best, a global leading independent credit rating agency for the insurance industry.
  
  
  
  
• Who owns UOI today?
  United Overseas Bank Ltd (UOB) is the largest ultimate shareholder of UOI with 58.4% shareholdings held in its interest in Tye Hua Nominees Private Limited. As such,
  
  – Wee Cho Yaw is appointed as Chairman of UOI.
  – Wee Ee Cheong is appointed as Non-Executive Director of UOI.
  
  
  
• P/E Ratio
  As I write, UOI is trading at S$ 7.25 a share.
  
  Here, I’ll present two different calculation:
  
  
  a. Based on the 10-Year EPS average of S$ 0.435, UOI’s current P/E Ratio is 16.67.
  
  b. Based on EPS of S$ 0.390 for the year 2018, its current P/E Ratio is 18.59.
  
  
  They are both higher than its 10-Year P/E Ratio average of 10.76.

• P/B Ratio
  As of 31 December 2018, UOI has net assets of S$ 6.19 a share. Thus, it has a current P/B Ratio of 1.17, which is higher than its 10-Year Average of 0.95.

• Dividend Yields
  In 2018, UOI has paid out S$ 0.22 in dividends per share (DPS). It is its second year of paying S$ 0.22 in DPS after paying a string of S$ 0.17 in DPS since 2012. Hence, if UOI is able to maintain its DPS at S$ 0.22, its current dividend yield is 3.03% per annum.

Source: UOI’s Annual Reports

VIA’s Verdict

UOI has delivered stable returns to its shareholders over the last 10 years as it paid out consistent dividends. Moving ahead, UOI remains committed with its adoption of prudent underwriting practises and it would focus on cross-selling opportunities with UOB in Singapore and UOB branches across Southeast Asia for growth.

In terms of valuation, it is now trading at above-average P/E and P/B Ratio. The insurer is offering a dividend yield of 3.03% based on its current stock price. So, the question is: ‘Would you invest in UOI at S$ 7.25 a share today?’

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