CHAIRMAN'S REVIEW

It is my privilege to place before you, on behalf of the Board of Directors of East West Life Assurance Company Limited, the 18th Annual Report together with the audited financial statements of the company for the year ended December 31st, 2010.

 

THE ECONOMY
After the global economic downturn in 2008, Pakistan's economic performance improved steadily expecting GDP growth rate of 3.3% for the 2009 - 2010 fiscal year. Some important gains were also made in stabilizing the macro economy of the country resulting in reduced inflation, contained government borrowings, contraction in external imbalances and increase in remittances from abroad. The rising trend in the economy was evident at the beginning of the 2010 - 2011 fiscal year showing further improvement by achieving 4% growth rate in GDP.

 

While the country was going through this economic revival, it faced a natural disaster of floods in July/August of 2010. The floods effected huge areas all over Pakistan and, at one time, almost 1/5th of total land area of Pakistan was inundated. Resultantly, approximately 1,800 people lost their lives and half a million became homeless, whereas, the estimated losses of properties are expected to be in billions of rupees. The power infrastructure of Pakistan also took a severe blow from the floods creating big hurdles in the growth of industrial sector. In short, the floods have significantly thwarted the macro economic activity resulting in drastic reduction in GDP growth rate of 4% recorded prior to the floods. While it is likely to improve in 2011 (provided that the government has consistency and its policies are public-oriented and no further calamities overtake the country), it may take many years before it could return to its realistic figure. Moreover, even though the floods are now over, the rehabilitation of the displaced persons and infrastructure would be a challenging task for the government to face.

 

Growth of insurance industry is linked directly with the economic activities in the country. The prevailing downturn in economy would further slowdown the growth prospects of the insurance industry. Heightened competition and subdued growth prospects within the insurance sector are also affecting the overall premium income of the industry. The insurance penetration in Pakistan continues to remain lowest in the region, even less than India and Sri Lanka. Hence, there is a great potential for growth, which can only be realized by enhancing public awareness. In this regard, joint efforts of all parties involved in the industry could playa vital role.

 

COMPANY'S FINANCIAL PERFORMANCE
In 2010, your company has reached some important targets in its financial results, including:
  • Paid-Up Capital reached Rs.500.456 million with Authorized Capital of Rs. 600 million,
  • Total Statutory Fund Income increased by nearly 18% to reach Rs.190 million,
  • Gross Premium Income crosses Rs.250 million for the first time in the company's history,
  • Balance of Statutory Fund reaches nearly Rs. 214 million for the first time as well, and
  • The company's overall renewal premium has grown by an impressive 60% from Rs. 21.1 million in the previous year compared to Rs.33.7 million in 2010 primarily due to the excellent performance of the individual life marketing field force.

 

During 2010, with the grace of Almighty Allah, the results of your company have improved significantly as compared to the previous year. In this regard, some highlights are as follows:
  • Excess of Income over Claims and Expenditure figure combined for both shareholders' and statutory funds has turned around by more than Rs. 269.5 million. Specifically, there was a loss of Rs. 263.6 million last year versus a positive result of Rs. 5.9 million in 2010. Even when the equity-related losses/gains are removed from both 2009 and 2010 figures, we still see an improvement of more than Rs. 46.1 million in this regard.
  • The combined shareholders' and statutory funds earning per share has also turned around by Rs. 6.19 per share.
  • Net premium income has increased by almost 19% from Rs. 154.5 million in 2009 to Rs. 183.7 million during the year being presented.
  • As a result of extensive efforts by the company, its management expenses have reduced by approximately 22% or Rs. 28.7 million, which is a sizable i f gure resulting in extensive improvements.
  • In 2010, the company achieved a gain on sale of investment in the amount of Rs. 18.5 million (after including net impairments) against loss of almost Rs. 205 million in 2009 as a result of impairments and disinvestment in shares. In this regard, by achieving such excellent results in the current difficult economic environment, the company's investment decision makers deserve appreciation.

 

Despite the improved results, the company is still focusing on improving net claim results and control expenses even further while keeping in view that operational/underwriting profitability is the key to future success rather than investment related gains, which are unpredictable.

 

FUTURE PROSPECTS OFTHE COMPANY
In view of the improved results in 2010, the company is focusing on continuing and expanding the activities primarily responsible for the turnaround. This includes efforts to further reduce management as well as administrative expenses, additional modifications in the field force compensation package to manage acquisition costs, expansion of marketing personnel under close supervision, use of new business procurement channels (such as bancassurance), enhancement of Human Resource mobilization as well as utilization, promotion of a professional environment and corporate culture, necessary modification of departmental structures to maximize efficiency and enhancement of investment management tools.

 

Moreover, the focus of the company's management will be on the following areas for the future:
  • Information Technology (IT) will be used to introduce value-added services with view of customer services and business expansion.
  • Steps are being taken to expand business volumes further, especially within the company's group/corporate health portfolio, as this is necessary for achievement of positive results within corporate-related statutory funds of the company.
  • After some success, the company is planning to expand the commission-based branch office model in certain areas with close and strict monitoring at every level of the organization.
  • The budget developed within the company will be expanded to be more detailed so that business procurement and expense management can be better controlled from bottom-up within the organization.

 

With a view to maximize returns for policyholders and shareholders of the company, the management's job in 2011 is to further improve financial results of the entity. The board is certain that, despite the bleak economic conditions being presently experienced in the country, the company's performance can improve if the management keeps a stringent focus on customer-services, timely as well as friendly claim payment service, new business procurement opportunities, introduction of new/unique products in the marketplace and expenditure management.

 

ACKNOWLEDGEMENT
Before concluding my review, I would like to avail this opportunity to express my deep gratitude to The Ministry of Commerce, Government of Pakistan, and the Securities and Exchange Commission of Pakistan (SECP) for their continued guidance and assistance to the management in running the affairs of the company in a prudent manner.

 

My thanks also to the competent and dedicated officers, staff and field force of the company for the outstanding contribution made by them towards its development and growth. Their pledge to ethical standards, client service and hard work has helped our company emerge and maintain its position as a significant member amongst private sector life insurers.

 

Moreover, I would also like to acknowledge the assistance of Insurance Association of Pakistan (IAP) for their support and invaluable representation of our industry. I also place on record my deep gratitude to the company's dedicated policyholders and corporate clients for their continued support and confidence.

 

Lastly, my thanks and appreciation to the thousands of our shareholders, whose dedication for the company is a source of encouragement for us to make East West Life a strong and dependable financial organization and a symbol of security for the marketplace.

 

May Almighty Allah bless us all (Ameen).

 

On behalf of the Board of Directors,

 


CHIEF JUSTICE (R) MIAN MAHBOOB AHMAD
Chairman

 

 

Karachi, March 8th, 2011