CHAIRMAN'S REVIEW

It is my distinct pleasure to place before you, on behalf of the Board of Directors of East West Life Assurance Company Limited, the 17th Annual Report together with the audited financial statements of the company for the year ended December 31st, 2009.

 

The Economy
During 2009, Pakistan’s economic situation remained gravely stagnant. A year earlier, Pakistan had tried to arrange aid to the tune of $100 billion, which did not materialize, and, resultantly, the country had to approach the International Monetary Fund (IMF) and arrange loans in the amount of $7.6 billion to avoid bankruptcy. In mid-2009, this loan regime had to be increased to more than $11.3 billion to prevent a balance of payment predicament. Pressure of such high amount of loans, excessive inflation rate, low savings rate and other negative economic factors have made it almost impossible to achieve a respectable growth rate within the country. Besides this, problems related to lack of security and continuing role in the War on Terror has resulted in severe reduction of foreign investment in Pakistan. Furthermore, the collapse in Pakistan’s currency value has added to the economic troubles being faced in the country.

 

In view of the economic woes that have been continuing for at least the past two years, Pakistan’s main stock exchange, namely Karachi Stock Exchange, crashed during the first half of 2008 wiping out a major portion of worth for its investors. Your company, exercising on an option given by the Securities and Exchange Commission of Pakistan (SECP), choose to book the impairment and, in certain scrip, realize the loss resulting from the said stock market crash during the year 2009. As a result, the negative impact of Rs. 221 million led to a loss in the company’s investment income in the amount of Rs. 191.9 million. However, the company’s management is positive and feels that the ensuing liquidity from disposal of unprofitable equities will allow East West Life to invest in profitable instruments resulting in favorable investment income in the near future.

 

Company's Financial Performance
In 2009, your company has reached some important targets in its financial results, including:
  • Paid-Up Capital reached Rs. 454.96 million,
  • Gross Corporate Premium Income crosses Rs. 176.3 million,
  • Gross Total Premium Income increased by more than 21% in 2009 to reach Rs. 235.8 million,
  • Balance of Statutory Fund crosses Rs. 162 million,
  • Total Individual Life Premium Revenue exceeds Rs. 57 million, and
  • The company’s first year premium has continued to grow by an impressive 96% from Rs. 18.3 million in the previous year to Rs. 35.8 million in 2009 due to the excellent performance of the expanded field force marketing the company’s new investment-linked product-line.

 

As a result of the dismal performance within the company’s investment portfolio, all fresh capital inductions and liquidity realized through normal operations is now being invested in secure government securities, treasury bills, “A”-rated TFCs and term deposits offering reasonable and, in some cases, attractive returns. Moreover, the company is not closing the door on future investments in the equity markets as our professional fund managers are continuously on the lookout for under-valued scrip where company can achieve attractive returns for the benefit of the company’s shareholders as well as policyholders. In the adverse investment income scenario, it is important to note that the company continues to give decent returns to its policyholders being one of the few life insurance companies in the industry to do so during the economic crisis of the past two (2) years. Furthermore, the solvency position of your company is good, despite the low value of investments, as the minimum requirement of our Regulator, Securities and Exchange Commission of Pakistan (SECP), has been easily met during 2009.

 

With regard to the overall loss being declared by the company during 2009, the reasons for the same are two-fold. Firstly, as stated above, main portion of the negative results can be attributed to realization of the loss amounting to Rs. 221 million due to disinvestment/impairment of equity-related investments resulting directly from the crash of the Karachi Stock Exchange in mid-2008. Secondly, the company’s underwriting results, unfortunately, have suffered during the year under review as a result of high ratio of group/corporate claims and management expenses. The company has taken serious notice of this loss and immediate actions are being taken in this regard, such as commencement of the process of gradually switching all equity-related investments into interest-based/secure investments and institution of rigid steps to improve claim performance and control management expenses, including closure of non-viable branches of the company, where necessary. We realize that it is crucial to attain operational/underwriting profits instead of relying on erratic investment income to achieve positive results.

 

Future Prospects of the Company
Year 2010 and at least the next few years will be vital for the company’s marketing efforts, especially on the front of Individual Life business. The company has established a sizable base within this portfolio and, now, achievement of requisite persistency in a cost effective manner is essential for growth of this business and the company. In this regard, it is heartening to notice that, in view of the high management expenses of the individual life business portfolio during the past year, the management is, without delay, analyzing the reasons for the high expense and assessing the viability of the company’s branches. Accordingly, necessary steps are being taken, including closure of branches or move to smaller branches, to reduce expenses on an immediate basis. Moreover, to curtail the lapsation ratio, individual life field force compensation and structure has been modified with emphasis on persistency and business target achievement.

 

The focus for the future will be on the following areas by the company’s management:
  • Information Technology (IT) improvement has again become important with a task to develop a comprehensive Management Information System (MIS) reporting structure for timely information distribution to management, committee and board personnel.
  • The company is working on expanding its group/corporate field marketing staff with a target to improve business volume in order to achieve economies of scale and enhance overall results of this portfolio.
  • The management will also develop a detailed Human Resources Management (HRM) manual to improve the quality, enhance task management skills, upgrade management’s HR assessment capabilities and standardize criteria related to HR tasks.
  • The company’s management will continue and further emphasize their efforts regarding the very important task of controlling expenses as this has become essential in view of the high management expenses. In this regard, the internal management reporting standards are being upgraded to attain a month-by-month achievement/profitability report so that quick and in-time action can be taken by the internal committees and management of the company to improve overall results on a timely basis.

 

The company’s primary task is to improve its overall financial performance in 2010 and the near future. When the steps already initiated by the company (some detailed above) are followed without deviation for frivolous reasons, it can be said with confidence that this improvement will definitely occur despite the dismal overall economic situation prevailing in the country at the current time.

 

Acknowledgement
I would like to take this opportunity to express my sincere thanks to The Ministry of Commerce, Government of Pakistan, and the Securities and Exchange Commission of Pakistan (SECP) for their continued direction and support given in managing the affairs of the company in a prudent manner.

 

The directors wish to record their appreciation for the tremendous contribution made by the able and eminent officers, staff and sales force of the company towards its development and growth. Their continuous commitment to high ethical standards, client service and hard work has helped your company emerge and maintain its position as a key member amongst private sector life insurers.

 

Moreover, we also wish to thank the Insurance Association of Pakistan (IAP) for their assistance and valued representation of our industry. We would also like to sincerely express our gratitude to the company’s loyal policyholders and corporate clients for their continued support and confidence in our company.

 

Lastly, my thanks and appreciation to the thousands of our shareholders, whose enthusiasm for the company is a source of confidence for us to make East West Life a sound and reliable 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 9th, 2010