Oman United Insurance Company SAOG (OUIC) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to our discussion session. My name is Moosa Amri. I'm the Investor Relations Officer. First of all, we would like to thank the FSA and MSX for organizing this session. Today, we will discuss the company's audited financial statements for the year ended December 31, 2024. Joining us here our CEO, Mr. Muthukumar; Deputy CEO, Mr. Sivakumar; and Ms. Latha, DGM Finance. After our discussion, we will open the floor for questions. Now I will hand over the floor to our CEO to lead the session.

Good morning to everyone. This is the audited financials presentation. Presentation will be led by Mr. Sivakumar, Deputy CEO, and we will have the question and answer session after completing the presentation. Mr. Sivakumar, over to you.

[Foreign Language] Good afternoon, everyone. We thank you for the opportunity to present the details of the audited financials, and wishing everyone Ramadan Kareem. Let's start is our presentation. This is a broad overview of the company's performance during 2024, the challenges and where we are working on those challenges and where we ended. The [indiscernible] have forward-looking statements, so we need to be careful that these are made on a lot of assumptions, and it depends upon how the market is evolving as per Oman is concerned. Our mission, as always, no change in the overall direction. We remain committed to the giving a better customers experience as an insurance company, top it with operate scalable, sustainable and uninterrupted cash dividends to the shareholders. So we are in an environment where it is a highly competitive environment as well Oman is concerned. And we have undertaken as management different strategies during the year to ensure that we are able to move towards our mission and vision. Broadly, as far as awards for Oman United is concerned, I think 2 notable awards, AIWA Award we got for the Best Grant as far as Oman is concerned and another award, the Oman Economic Review, which is the exemplary customer service and claims [indiscernible]. So our teams have been geared, and they have delivered fairly well as far as our customers are concerned, and we have been able to retain most of the customers as far as the corporate segment is concerned also. As for Oman United is concerned, there have Venn diagram set up in 1985 with the OMR 2 million capital. The capital is OMR 10 million. We have reached the maximum -- the limit rate down as raised by the back half, I say on the FSA [indiscernible] of OMR 10 million. We have our full leader reserve of 1/3 of the capital, which is also there. We do not expect any more appropriations for reserves from [indiscernible]. Whether it is the Board of Directors or the executive senior management team, more or less, you will observe that there has been stability. And 9 years, the overall executive team has been involved and have been there, 9 members are there and more or less [indiscernible] under stewardship. We have all the other Directors who have been there for the last 8, 9 years, except for 1 Director [ Dr. Hamid ], who has been there since 2021. As far as the senior management team is concerned, also, most of the 9 members are there. Most of us have been with the company, and we have been with Omani United for 10 years. The only exception is Mr. Moosa, who is our company secretary and Investor Relations Officer. He joined since 2020. And clearly, we have a stable management team. Looking back our third slide of the presentation where we are proud to be consistent with our track record. We have -- the company disbursed more than OMR 50 million since the beginning. And over the last 16 years, itself, the company has paid a consistent cash divident of OMR 41.1 million, which includes the declaration of 25% dividend approved by the Board in the AGM yesterday of 25%. So for almost OMR 41.1 million, consistent dividend track record as far as Oman United is concerned. From a distribution channel's perspective, there's a small change. Last year, it was 12. We have 11 branches, 35 tied agents, 25 [indiscernible] and [indiscernible] brokers. These are all long-term relationships. Relationships have been consistent, including our reinsurance partners, who are SCOR [ Sorin, ] et cetera. They're our main [ agent ] security agency. These are relationship has stopped, and they have continued to support Oman United during the tough years. Now moving to the comprehensive income for the year '24 versus 2023, you'll see that 2023 were restated right around the IFRS 17 launch. And from an insurance revenue perspective, we grew from a OMR 32.8 million, or almost OMR 33 million, to OMR 35 million. On the insurance services, again, 600,000 broadly, we ended the year with 864,000 -- 865,000. Net profit after tax of U.S. income was stable at about, we believe, OMR 3.1 billion -- OMR 3.108 million. Net profit was against OMR 2.17 million before tax. We ended with OMR 1.7 million. And net profit after tax, against OMR 1.98 billion, we were at OMR 1.5 million. And total comprehensive income was OMR 2.3 million against OMR 1.16 million. However, this has to be seen in the backdrop of the fact that in 2023, there was -- we used to have an automobile garage, which the Board took a decision to have it off on a lease rental basis. So that was there as an income into the OMR 600,000 insurance services result. But now that has gone up, and that comes outside of the insurance revenue. Insurance services, that can sit separately at other income. So that's about OMR 180,000 on an ongoing basis, which is OMR 15,000 [indiscernible]. As far as OUIC's financials for December 31 is concerned, we have an asset size of OMR 94.7 million. Paid-up capital was OMR 10 million. And shareholder's equity are OMR 27.4 million, including the contingency reserve. Total investment for the year -- end of the year was almost OMR 60 million total investments. 60% are in deposits, mainly due to regulatory requirements as well as stability in keeping liquidity for us for making regular payment of claims also. The net profit was about OMR 1.5 million against OMR 1.98 million last year. The solvency surplus, which is the health of the insurance company to meet the liabilities, as far as Oman United is concerned, we required a statutory requirement of OMR 11.14 million as per requirements. Our actual is about OMR 14.4 million, with a surplus of OMR 17.7 million. But this is to be seen in the background that there is another OMR 2 million of an investment into mutual funds, which were not allowed for the solvency surplus calculation. So broadly, if apples to apples to look at it, we will be at about OMR 16.1 million. It means that the requirement of the OMR 11.1 million. Accumulated contingency reserves of OMR 10 billion. Overall, our profit is strong. Corporate governance framework have ensured that we have been consistent as far as our performances across various divisions is concerned. This slide is just to give you a slightly more detail on the investment income specifically. We have OMR 3.1 million, which is a stable kind of investment return. And against that, you have an operating expense of OMR 2.2 million against the OMR 1.5 million last year, overall, which is ultimately leading to the OMR 1.7 million profit before after tax and after tax of OMR 1.5 million. Broadly, as far as the balance sheet of Oman United is concerned, I think it's -- it continues to be strong. We are one of the few players in the market with a strong balance sheet. And we do believe that in the light of the competition and the light of the market, we have been a little conservative in our approach. But last year, we opened up a little bit on certain aspects of the business. And so that has resulted in some corrections, which we had to undertake. Overall, against the OMR 28 million last year of the total capitals and reserves, we ended with OMR 21.4 million. More or less, all the hedge, plus or minus, are on similar, but the only aspect, which we need to look at is the -- we have our garage as well as the building of Oman United for running the insurance operations in Al Khuwair. These are all valued by a separate professional volume. So we have a 9-storey building and a garage property in Ghala, which is also -- both of them have been valued higher than what we have in the balance sheet. We have an unrecognized depreciation of about OMR 2 million for the head office property. And -- I'm sorry, garage property at OMR 1.74 million. So a total of about OMR 3.86 million is there as unrealized kind of lease as far as at least properties are concerned. I think shareholder's equity, I already briefed. So coming back to composition on the strategy of investment. Okay. I think, last year, we did give a brief saying that we will be getting into more equity investment, and that is -- I think you will see the reflection in the numbers. Slightly, our fixed income investments we have rescheduled and put it in equity investments. There have been decent returns. Against the OMR 61 million, we are at OMR 59 million as far as the overall composition of investments is concerned. So while the fixed income securities is still a larger chunk, but this is required not only to keep liquidity for payment of claims, but also for meeting the regulatory requirements. Overall, consistent dividend paying company as far as Oman United is concerned. Next, we take pride that we have invested in the Omani people as part of our teams. We have an 88% Omanization ratio, but we have also invested last year into various training programs, encouraging people to take various insurance courses and also going for certain programs, which will help them to really contribute better. So overall, we have more than 4 people and so good Omanization ratio. We take pride in the contribution of our people over the last years. We have retained earnings of OMR 4.26 million. IFRS 17 implementation was done smoothly, even though there are challenges in the completing the task within the assigned time period given by the regulators. But we have been consistent over the last 2.5 years to complete the whole exercise consistently. Also I think from our outstanding claims, IBNR reserving policy, we have been conservative. And generally, our actual IBNR provisions have been adequate, and we have not had any instance where it has come to light and we had to come up with any surprises. So we are adequately reserved. I think this slide is a little important, and we would like to [indiscernible] this slide. There had been a fairly excessive or extreme competition in Oman. And also coupled with it is the challenge of not many fresh new projects coming in. While there was -- the underwriting profit margin was under stress last -- to last year, and we took -- undertook some corrective measures into certain portfolios like medical as well as motor. We have corrected -- we have seen positive trends moving up. So we have had instances where we removed discounts, we ensured that the minimum -- cap premium which we should recover increases overall for the book. This has also resulted in reorientation of the portfolio, wherein there is a shift. As far as the average premiums is concerned, it has gone up fairly significantly on the comprehensive side. On third-party side, third-party premiums for motor also, we undertook this exercise of correcting the premium, taking the headway in the market, and we led the market with slightly higher prices as far as third party is concerned effective 2023 end. And this culminated into better results slowly improving from third quarter onwards. Catastrophic events, Al Wadi was impacting as far as the reinsurers are concerned. So they have increased the costs overall for the -- in general for the market. Glad to report that we did not see much of a change as far as our costs are concerned. The reinsurance program continue to be more or less on similar capacities as 2023, which itself is a fairly big indicator of the reinsurers' confidence in our underwriting and not tightening the terms as far as capacities are concerned. For 2025, we do expect some tightening as far as the motor excess of loss pricing is concerned because it has gone up in general in the market for the competitors, including Dubai by about 10%. But we will evaluate this as we encounter this post April once our reinsurance work gets underway. And we expect that we may not be at that kind of pricing increases as others have seen, but I think we have been the first. On the medical insurance business, we have applied for the licensing based on the guidelines of FSA. And we are awaiting the results of our filing for the licensing for the medical business. But on a broad basis, if you have to really look at the portfolio distribution, Oman United has been having a fairly good portfolio mix. We reduced the motor segment a little bit last year, and we ended with a 45%, 46% on the motor as an overall composition. We have another about 45% on the non-motor, which has been stable for us, and another about 9% to 10% is on the medical and life. Overall, medical business has been very, very cutthroat. Pricing is inadequate, but we have been undertaking a very cautious approach, so that we don't get into a cash flow kind of challenge. So we manage it within the month-on-month kind of or quarter-on-quarter business, which comes in, and we are able to -- right now, we are able to handle it with a reasonable small profit. As far as collection of payments, yes, it continues to be a challenge as far as the market is concerned. It may have improved slightly more compared to 2023. But there's an ongoing challenge as far as the market is concerned. And there has been some changes, regulatory changes, which have implications because the payments to the hospitals are being made directly by the insurers to the hospitals. And therefore, we have a lesser window to make the payment of claims for the medical policies, which is going through the platform. But I think we've been -- since we were conservative last year, I think we have been able to manage that cash flow reasonably well. Next. As far as the future outlook is concerned, I think Oman United, we are trying to work on the digital marketing presence on the 3 main products, motor side, the personal accident and travel side immediately. And we will be going with some more products on the shelf by June. But this is undergoing the kind of process of approval by the regulator. We are filing with the regulator by March 31, and we hope to move towards this as far as the digital product piece is concerned by -- in the second quarter of this year. Overall, we will be expanding equity investment, but we will be very cautious considering the liquidity in the market. Non-motor has done reasonably well. So our focus on the non-motor business will continue. And as an opportunity, we expect that if mandatory health comes in, it will be an opportunity not only for us as Oman United, but for the market as a whole. Thank you.

Any questions?

Just a couple of questions. Can you talk about your portfolio mix right now? And how do you see that evolving going forward? And also could you give us some color on the loss ratio in each line of business? And what it is going to take to turn around and get combined ratios under 100%? Because I think you're losing money on a combined ratio basis. So can you give us some perspective of what it will take to turn it around?

Yes. As I explained, our portfolio mix is fairly healthy at this stage. We reduced it from 48% to 45% -- or 45.5% on the motor. We have 45%, 46% on the non-motor side and about 9% on the medical and life side. So we expect the motor premiums to be slightly increasing as far as the market is concerned. There are -- the actual exercise is underway, and there is a need for a kind of increase in pricing as far as motor is concerned. So we do expect the portfolio mix more or less as far as Oman United is concerned. Slightly, it will changed to about 47% or 47.5% as far as motor is concerned. Non-motor is more or less stable. Medical will be slightly shrunk as far as that is concerned. So overall, we'll be at 47%, 48% versus 45%, 45.5% on the non-motor for the year and about 6% or 6.5% on the medical and life. As far as loss ratios are concerned, yes, I think we do take a point. But the measures which we have taken, especially on the non-motor, it's a profitable piece. We have been enjoying profit commissions from the reinsurers for a very long period of time, except 1 year. Over a long period of 10 years, we have decent profit commissions also on the non-motor side. Medical, we are just seeing the current market. I think we will increase the portfolio size with the brand premium size slightly going up. I think it has to stabilize as far as pricing is concerned. We are seeing too much of competition for medical business, which may not be viable. On the motor side, as I said, we will see price increases. But as far as combined is concerned -- combined ratio, we would expect it to be less than 100%. And I think we want it to be at about 98.5% for the year as far as budgeting is concerned.

I'm sorry. Can you repeat the last part?

98.5% is the expectation based on the budgeted numbers.

Okay. But we'll have to see how that number evolves as the year goes forward. Okay. Can you talk about your retention ratios? Obviously, motor is where you retain most of your premium. Is that strategy still going on? Or have you started increasing or decreasing retention ratio? Is there a possibility on the motor side? I'm assuming anything ex motor and ex medical, it's pretty much passed on. Is that fair? Or am I missing something?

I think your reading is correct. As far as non-motor and medical and life is concerned, our retention ratios are in excess of 90%. We have not lost any major pocket accounts. As far as motor is concerned, yes, there is a change of strategy which was undertaken last year, which will impact our renewal ratios also. So it had come down by about 5% as far as retention ratios from about 64% to about 59% or 60%. But this was a combination of multiple pricing changes, which we did and seeing of the customers which was undertaken as an underwriting strategy in the last year. So overall, we -- our projections were that we will lose about OMR 100,000 per month as the customer premium for motor, which, more or less, on an average basis ended the year with the same kind of numbers. On the portfolio mix, within the motor portfolio, yes, motor third-party price, we had raised. And therefore, we did expect a reduction of the customer base, which we expected at a 15%. We ended with 17%. Now there is some price correction, which is underway. So hopefully, this should stabilize and positive.

And what are the conversations with reinsurers like? Have they raised rates, which you're trying to pass on to the end consumers? What's going on in the reinsurance treaties that you have?

I think as far as motor is concerned, which is the primary piece -- on the non-motor, we have been more or less stable. So it's not -- we didn't have a reduction in capacity. See, there is a change which is happening in the market where the reinsurers are not willing to give surplus lines on the reinsurance programs. We have had the benefit of having that continued for the last year also. We expect that to be continuing for the non-motor treaties. On the motor side, some cost increases are likely, but we will try to keep the cost prices not at the market level, but we expect it to be better for us.

Okay. On the OpEx side, when I look at the notes, I'm a little confused. Can you tell me what's happened, this OMR 1.5 million has gone to OMR 2.25 million. And I'm seeing the direct costs are actually pretty much similar. In fact, there's a slight drop. So can you just tell me exactly what am I looking at here? Why have the costs gone up, the net operating expenses from OMR 1.5 million to OMR 2.25 million?

See, [ Rakesh ], basically, post IFRS 17 and last year also, we had this interaction where there were costs which were to be relooked at for allocation. So the general cost operating expenses, which were there, which was refined over a period of the 4 quarters based on interactions with actuaries as well as actuaries of the auditors. And there are certain heads of expenses, which are not directly attributable to the line of business where our cost methodology was appropriately backed.

Okay. So from an overall cost point of view...

It will be more or less stable.

Okay. Understood. Got it. And can you tell me -- you said that you want to increase equity investment. What sort of equity to debt mix you're looking at? What sort of yield are you looking at on the debt and the equity portfolio?

Yes, it's a good question. Now compared to 2023, '24 onwards, the new IPOs have come. So the opportunities are there for us now, particularly in this core -- the OUI Group companies. So we'll be looking at it from the dividend point of view. Whenever there's an opportunity at the lower prices, we will be able to accumulate it. So at least we have a liquidity is there for that spot. And even if you buy it, you will be able to sell it. So this is what the strategy that we are planning top line.

So what is the max that CMA allows you to go in equities as a percentage of your overall book?

I think 30% of all.

And you want to be at 30%. Is that what you're saying?

Yes. See, we have to see the liquidity also, and we have to look at the market movement also. Accordingly, we will try to see. Our approach is always a dividend point of view. We have to see that, okay, at least it is giving us minimum cash [indiscernible] of around 6% to 7% yield with capital protection. So if that being the case, then definitely we'll be for it.

And where are you right now as a percentage? Instead of 30%, where are you, sir, now?

Right now, if you see here, it will be around -- it will be less than 20% now. It's less than 20%.

And what's your yield -- your actual yield that you recognize on the fixed book, both bonds plus fixed? What is the expected yield on the book?

It's almost like 5.5% to 6% because most of deposits were kept for a longer period. So right now, we are enjoying almost 5.5% to 6% yield that we are getting on the deposits. And for the dividend yield, I think it's much more actually, considering the market price and the companies are declaring good cash dividend. In fact, for 2025, we are expecting about around OMR 1 million of dividend that we should be getting for this year.

Excellent. And what's the average period of your fixed deposits? Because there might be some interest rates cut that people are talking about in the U.S. And being a tech currency, we'll have to bring it down. So how -- what's your period of your fixed deposits on average?

I'd say maximum, we used to keep it for 5 years. And every year, some will come up for maturity. And that maturity amount, there is a good investment opportunity within the equity market, getting diverted to equity. That is our plan.

No, no, I know. I'm just asking what's the average age of your fixed deposits right now. Currently, what's the average age of it?

Right now, maybe 23 years top.

Any other questions?

I had one more question, if you'll allow me. What's the update on this mandatory policy? And I think from -- when I speak to a few people from being very excited about it a few years ago, now people are very cautious saying that we have to manage the loss ratios carefully. Prices will be competitive. So what's your view on this mandatory insurance? And how is Oman United planning to tackle it?

In mandatory health, you are talking about mandatory health insurance. Am I right?

Yes, Mr. Muthukumar, yes.

See, that's what Mr. Siva mentioned. We have to get a license for it separately, okay? So we have applied for the license, even though we are doing that -- right now, we are doing that in medical insurance. But now going forward, we have to get a separate license for the medical book. So for that, we are praying for it, and we are waiting for the feedback and decision. And then, of course, there is a talk that they are likely to give it only a few companies, so that we have to wait and see. So there are categories, A category, B category. So only A category companies will be able to write the business from the market, and big category companies can take coinsurance from these companies. So we have to wait and see how many companies FSA is giving approval. And depending on that, the competition will be playing a major role on it. Medical, always, we are very careful and not much of margins on this. So we -- one needs to be very careful on that.

Yes. What are the current loss ratios on the medical side for you and for the industry, if you have any data?

No. Industry data on medical, I do not know. But as far as we are concerned, we are budgeted to have maybe a 1.5% return for the medical business for 2024.

Actually, for 20 -- sorry, you said '25 or '24, I missed that last part.

No, 1.5%.

For '25, you said budgeted. So I'm just wondering, it's for '25, you mean.

Yes.

And what was the actual results in 2024?

'24 was almost 100%.

Any other questions?

Since there's no one else in queue, I was just giving someone else an opportunity, then I have another question regarding the state of the motor industry. Anecdotally, I'm hearing interest -- premium rates are going up. Can you talk about what's the trend that you're seeing when it comes to premiums in the market from your biggest competitors? And where you're seeing rates Y-o-Y this year and the next couple of years?

Slightly difficult question. I will not be able to answer fully, but I think I'll give you some heads-up on it. I think all of the insurers are feeling that the pricing is inadequate. And we have to go purely by whatever actuarial reports and what management decisions we had taken. So whatever decisions we took in the end of '23 and the first 2 quarters of '24, more or less, our plus/minus 5%, we achieved our kind of broad strategy on what our budgeted numbers were there. Slightly, we were short because the market did not respond to the price increases the way it should have probably. For us, we increased the price on an average by about close to 10%. And we increased on the third-party side. On the non-third-party policies per se, we increased to the extent of almost 17% or so over a period of 2 quarters. This pricing still has to go up based on the actuarial reports, which we expect the actuarial reports for the December 31 actuarial pricing report from the actuaries by the next 2, 3 days. And this will also, I think, give us a direction on the price changes, which we already have in mind based on our data, and we expect some more price changes to come.

So then which business will be harder for you to retain, the broker business?

Broker business have been fairly okay as far as we are concerned. We have not lost any major corporate accounts. The major challenges on the -- from a channel distribution perspective, medical business through brokers has been done.

Okay. Now when it comes to -- you mentioned digitization obviously. How do you measure progress? What are your KPIs? Can you share some success stories that the company has had on the digitization initiatives? And what's the plan with that specifically?

I clarified that this digitization initiative is requiring an FSA approval at this stage. There are 3 products, which we have to upload by March 31 as per the plan. And once FSA approves it, based on their approval or corrections or whatever suggestions which come, we'll have to incorporate it. We expect -- but we have projected only about 12,000 policies as far as the digitization piece in the first year is concerned. It will take some time because there will be a fair amount of public kind of dissemination of information which has to happen. I think it's a change of habits as far as the customer is concerned to move them away from a direct kind of interaction to online distribution. So there will be changes, and it will be a culmination of some advertisements or customer interactions from various modes. And we see -- I think it is not only for one. I think you'll see the change happening for all the companies based on the regulatory requirements.

No. But for example, if I have to ask as an individual, if I need to get my car in short from you, do I need to bring it physically to a location where your survey will come down, take pictures of the car and then I'll go up to an office? Will give me a quote? Or is that something I can do over WhatsApp or another platform currently as we speak?

As on today, I think it is not -- there are opportunities available where the customer can actually give the details. And if it is not an expired policy, it can get renewed. If there is an expired policy, there is obviously a validation exercise where photographs will be there as well as some validation exercise, which has to be done by calling the customer, et cetera. This will vary depending upon the individual company's risk management practices. But slowly, it will change. And I think you will see by the end of the year, there will be more convenience coming to the customer over a period of time.

Moosa?

Any other questions? If none, we will end up this discussion session.

Thank you, thank you.

Thank you so much to all of you for the interactive session, and wishing to you -- to all of you.

Thank you.

[Foreign Language] everyone. Thank you.