LankaBIZ

Review of Arpico Insurance PLC Interim Financial Statements – Quarter 1 – 2025.

1. Executive Summary:

Arpico Insurance PLC’s performance in the first quarter of 2025 shows a significant decrease in profitability compared to the same period in 2024. While total net revenue saw a reduction primarily driven by lower gross written premium, total benefits, claims, and expenses also decreased. However, the reduction in revenue outpaced the reduction in expenses, resulting in a substantial decline in profit before taxation and ultimately, profit for the period. The company’s financial position remains relatively stable, with a slight increase in total assets and total equity.

2. Key Financial Performance Indicators (1Q 2025 vs 1Q 2024):

• Gross Written Premium (GWP): Decreased by 21.1% from LKR 568,240,498 to LKR 447,483,879. This decline was driven by a significant drop in Group premium, partially offset by an increase in First year premium and Renewal premium.
• Net Written Premium: Followed a similar trend to GWP, decreasing by 22.0% from LKR 545,972,136 to LKR 425,926,706.
• Total Other Revenue: Remained relatively stable, increasing slightly by 0.05% from LKR 147,788,896 to LKR 147,859,495. Investment income was the primary contributor to other revenue and saw a minor increase.
• Total Net Revenue: Decreased by 17.3% from LKR 693,761,032 to LKR 573,786,201.
• Total Benefits, Claims and Expenses: Decreased by 12.0% from LKR 627,336,663 to LKR 552,291,701. This reduction was mainly due to a significant decrease in Net Insurance Benefits and Claims Paid and Other operating, administrative and selling expenses.
• Profit Before Taxation: Dropped significantly by 67.6% from LKR 66,424,369 to LKR 21,494,500.
• Income Tax Expense: Decreased by 49.6% from LKR 19,180,040 to LKR 9,660,350.
• Profit for the Period: Decreased substantially by 74.9% from LKR 47,244,329 to LKR 11,834,150.
• Basic and Diluted Earnings per Share: Decreased proportionally to the profit, from LKR 0.71 to LKR 0.18.

3. Statement of Other Comprehensive Income:

• The company recorded a significant Net change in fair value of available-for-sale financial assets loss of LKR 22,712,972 in 1Q 2025, a stark contrast to the gain of LKR 125,585,794 in 1Q 2024.
• This loss in Other Comprehensive Income resulted in a Total comprehensive Income/(Loss) for the Period, Net of Tax of LKR (10,878,822) in 1Q 2025, compared to a positive LKR 206,016,059 in 1Q 2024.

4. Statement of Financial Position (as at March 31, 2025 vs December 31, 2024):

• Total Assets: Showed a minor increase of 0.07% from LKR 5,009,848,226 to LKR 5,013,231,219.
• Significant movements include a decrease in Financial assets and Reinsurance receivables, and an increase in Cash and cash equivalents.
• Total Equity: Decreased slightly by 0.59% from LKR 1,841,078,024 to LKR 1,830,199,202. This was influenced by the decrease in Available for sale reserves.
• Total Liabilities: Increased by 0.45% from LKR 3,168,770,202 to LKR 3,183,032,017. Insurance contract liabilities increased, while Lease liabilities and Amounts due to related parties decreased.

5. Statement of Changes in Equity:

• The movement in equity from December 31, 2024, to March 31, 2025, is primarily driven by the Profit for the period (LKR 11,834,150) and the negative Net change in fair value of available-for-sale financial assets (LKR 22,712,972).

6. Statement of Cash Flows:

• Net Cash Used in Operating Activities: Increased from LKR (70,818,935) in 1Q 2024 to LKR (81,981,582) in 1Q 2025. This was influenced by changes in insurance premiums received, benefits paid, and other operating cash flows.
• Net Cash Used in Investing Activities: Shifted from generating LKR 68,919,696 in 1Q 2024 to generating LKR 252,023,394 in 1Q 2025. This significant change is mainly attributable to a substantial increase in Proceeds from sale/maturity of investment securities.
• Net Increase / (Decrease) in Cash and Cash Equivalents: Saw a significant positive change, increasing from a decrease of LKR 2,318,564 in 1Q 2024 to an increase of LKR 169,794,412 in 1Q 2025. This resulted in a much higher Cash and cash equivalents balance at the end of the period.

7. Notes to the Financial Statements:

• Reporting Entity: Arpico Insurance PLC is a public limited liability company incorporated and domiciled in Sri Lanka, listed on the stock exchange and registered under the Insurance Industry Act.
• Basis of Preparation: The financial statements are prepared on an accrual basis under the historical cost convention, with exceptions for financial assets measured at fair value. They comply with Sri Lanka Accounting Standard “LKAS 34 – Interim Financial Reporting” and the Companies Act No. 07 of 2007.
• Gross Written Premium Breakdown: Provides details of First year premium, Renewal premium, and Group premium. The significant decrease in GWP is primarily due to the drop in Group premium.
• Investment Income Breakdown: Details interest income from different classes of financial assets (Held to maturity, Loans and receivables, Available For Sale) and dividend income.
• Profit/(Loss) from life insurance: States that “No surplus or deficit transfer has been made from the life insurance fund to the Income Statement for quarter ended 31st March 2025.”
• Right of Use Assets and Lease Liabilities: Provides movements and balances for these items.
• Financial Assets Breakdown: Categorizes financial assets into Loans and receivables, Available-for-sale financial assets, Held to Maturity, and Fair Value through profit & Loss, with further breakdowns for each category.
• Insurance Contract Liabilities: Shows the movement in insurance contract liabilities, including the increase in life insurance fund and the movement in AFS reserve transferred to the life fund.
• Related Party Transactions: Lists amounts due to and from related parties, including the ultimate parent Richard Pieris & Company PLC and fellow subsidiary Richard Pieris Distributors Limited. It also details investments in a related party, Richard Pieris Finance PLC.
• Contingent Liabilities: States that as at March 31, 2024, there were no material capital commitments and contingencies approved by the board and contracted for which no provision has been made. The note for March 31, 2025, also states the same principle.
• Events Occurring After The Reporting Date: States that there have been no material events requiring adjustments or disclosure after the reporting date.
• Share Information: Provides Net Assets Per Share, Market Price Per Share details (highest, lowest, closing), Market Capitalization, and Float Adjusted Market capitalization. Net Assets Per Share increased from LKR 22.40 in 2024 to LKR 27.63 in 2025.
• Public Shareholding: States that public shareholding remains at 10%.
• Directors’ Shareholding: Lists the directors and indicates that none held shares as of the reporting date.
• Twenty Largest Shareholders: Lists the top 20 shareholders and their respective share percentages. Kegalle Plantations Limited, Richard Pieris Distributors Limited, and Richard Pieris and Co Ltd are the top three shareholders, collectively holding a significant majority of the shares.

8. Key Themes and Important Ideas:

• Declining Profitability: The most significant theme is the substantial decline in profitability in 1Q 2025 compared to 1Q 2024, driven primarily by a reduction in gross written premium.
• Impact of Investment Performance: The negative change in the fair value of available-for-sale financial assets in 1Q 2025 had a significant negative impact on total comprehensive income.
• Stable Financial Position: Despite the drop in profit, the company’s balance sheet appears relatively stable, with minor changes in overall asset and liability levels.
• Improved Cash Position: The significant increase in cash and cash equivalents indicates improved liquidity, potentially due to changes in investment activities.
• Related Party Relationships: The financial statements highlight the existence and nature of transactions with related parties, which is important for understanding potential influences on the company’s operations.
• Shareholder Concentration: The concentration of shareholding among the top few entities indicates significant control by these parties.

9. Conclusion:

The first quarter of 2025 presented challenges for Arpico Insurance PLC, with a considerable downturn in profitability. The decline in gross written premium, particularly in the group segment, coupled with losses from available-for-sale financial assets, significantly impacted the bottom line. However, the company’s financial position remains stable, and its cash position has improved. Future performance will likely depend on the company’s ability to reverse the trend in premium income and the performance of its investment portfolio.