ADAMJEE INSURANCE COMPANY LIMITED-AICL

COMPANY PROFILE

MULAZIM ALI KHOKHAR
Research Analyst
, PAGE
Apr 14 - 20, 2008

The Adamjee Insurance Company Limited, rated AA by PACRA, underwrites marine, fire, and motor and miscellaneous insurance like; covers engineering, bonding and surety, bankers' insurance, burglary and theft, kidnap and ransom and medical insurance. The other activities of the Company include investment and money management activities which have been quite profitable in her case.

The Company operates in Pakistan, United Arab Emirates and Saudi Arabia with 62 branches across the country. She was incorporated in 1960 and now has grown up to be Rs.1.022bn Company, a largest equity base in the insurance sector with total equity of about Rs.5bn. She is listed at all three stock exchanges of Pakistan and her market Capitalization stands at about Rs.38bn with total outstanding shares of 102.4mn out of which 32.6mn shares are closely held shares.

ACHIEVEMENTS AND EXCELLENCE

* "Top Companies Award" 17 times by KSE,
* "The Best Export Performance" Trophy 18 times by FPCCI,
* "2nd best company of Asia" by Euro Money,
* "Corporate Excellence Award" for consecutive 2 years by MAP (Management Associates of Pakistan),
* "A Excellent" rated by A.M. Best for 2 years,
* "The Best General Insurance Company in Pakistan 2007 by Consumer Association of Pakistan.

FINANCIAL PERFORMANCE

The political unrest and the resultant chaos have engraved clear negative impacts on insurance companies" underwriting performance. Adamjee's underwriting profits have gone down by 75.26% to Rs.119mn as compared to Rs.482mn last year, while on the other hand the company has offset these effects by impressive growth of 196% in their investment incomes to mark Rs.4.5bn as compared to Rs.1515bn last year.

Company's EPS has gone up to Rs.41/share marking an increase by 166%% as compared to corresponding period of last year figure of Rs.15.42/share. The gross premiums have gone up by 18.54% to mark Rs.9.4bn as compared to Rs.8bn last year, while the net premiums by 5% to hike to Rs.5.5bn as compared to Rs.5.3bn last year.

The company's management has rightly diversified the investment strategy and has been successful in overcoming the effects of the extra muscular stress of the political scenario. Once the country's political picture stabilizes, it will alleviate insurance earnings and the company will be able to accelerate on the growth rally.

Adamjee's stress points for the underwriting have been Fire, motor and Treaty provisioning which has gone up and resulted in losses under each head for the FY07. See Table#1.

TABLE 1
FINANCIAL PERFORMANCE

 

FIRE

MARINE

MOTOR

MISC.

TREATY

FY07

FY06

GROWTH %

Rs. In '000

Net Premium Revenue

1,118,069

1,041,231

2,496,213

859,886

16,419

5,531,818

5,280,128

4.77%

Net Claims

(1,040,935)

(331,265)

(1,819,862)

(695,031)

(27,998)

(3,915,091)

(3,354,851)

16.70%

Expenses

(213,222)

(198,568)

(476,048)

(163,986)

(3,154)

(1,054,978)

(923,120)

14.28%

Net Commision

(34,640)

(169,640)

(213,153)

(17,585)

(7,480)

(442,498)

(520,218)

-14.94%

Underwriting Results

(170,728)

341,758

(12,850)

(16,716)

(22,213)

119,251

481,939

-75.26%

As the 4Q FY07 has been one of the worst in the history of Pakistan's domestic riots, which were triggered after Mohtarma Benazir Bhutto's assassination. The destruction of private and public property has increased the claims and it might impact negatively the 4th Quarter results of the company. But this will also increase concerns in small and medium entrepreneurs' minds for the safety of their business properties and we can expect the insurance business will witness surge in near future.

COMPETITIVE ANALYSIS

The Company is a leading general insurer with 30% of total market share. She has about 40% of the fire insurance, 25% of motor insurance, and 33% of marine insurance. She represents more than 50% of total Profit after Taxes (PATs') of the market. As the insurance business is growing the competition is getting stronger and stronger. AICL is to face tough competition and it might lose some of its market shares in future.

EMPLOYEE PERFORMANCE

The revenue per employee has been outstanding. The company employees about 1300 skilled and unskilled persons and her per employee profits stand at more than Rs5mn per employee. Her sale per employee is growing with 5 year CAGR of 19% and at a YoY average growth rate of 25%. It stands at Rs.5mn per employee, which reflects the efficiency of the company in marketing her products and getting the high positive results.

SECTOR WATCH AND FUTURE OUTLOOK

The insurance Sector operates with 54 companies, 49 of them General Insurance and 5 Life Insurance Companies. Profitability of the non-life insurance has gone up by 17% in the 1H Fiscal Year 08.

The trend of insurance in increasing in Pakistan as the economy has been growing along with construction, industrial and financial sector development. There has been visible hike in fire, marine and auto insurance over the last few years.

But as the current scenario suggests AICL along with the insurance industry is facing very high risk as the country's political and financial risks are increasing. That's why they are increasing their provisions of claims and subsequent expenses. The coming quarter or two seem quite blurred. There has been increase in property fire and motor burning incidents and militant activities of bombing.

These all are indicating both positive and negative signals for the industry and AICL having 30 share of the market. Negative in a sense that occurrence of these events will increase claims and costs while positive in a way that there will be surge in insurance activities at all business and domestic levels to mitigate the expected losses on the part of the businesses. Insurance is all about risks and higher risks means higher insurance business and higher loss probabilities. Thus, this is the perfect scenario for the insurance businesses to flourish if successful.