RISE AND FALL WITH THE ECONOMY
Apr 14 - 20, 2008
Despite experiencing some tough times related to political turmoil and disturbances in the wake of assassination of Benazir Bhutto, and of course the national elections, the insurance sector continued to march confidently with lucrative profits soared by 102 percent and in terms of exact figures the profitability increased to Rs72 billion in the year ended December 31, 2007.
Besides the grey patch of political disturbances and law and order situation which resulted in enhanced claims in fire and motor segment to the level of 71 percent as compared 65 per cent previously. The insurance industry otherwise can be rated as one of the fastest growing sectors in Pakistan.
The growth momentum witnessed by the insurance industry in 2007 was driven by stellar economic growth, record inflow of direct foreign investment as well all time high home remittances, and enhanced economic activity both in trade and industry.
Having a look at the performance of active players in the insurance sector, the noticeable increase in the profitability goes to the credit EFU which posted unusual profits worth over Rs14 billion by December 2007.
The changing economic and political scenario however may pose serious challenges to sustain the rising trends so far witnessed in this sector, the mounting inflationary pressures, increasing interest rates and declining demand growth witnessed in automobile sector which contributes a major business to the insurance may call for careful handling in the days to come.
According to available data, the insurance companies" gross premium registered an increase of 15% at Rs30billion
As against the growth of 23% last year, which was however on the lower side when compared gross premium growth previously mainly because of diminished performance of Marine and Motor segments. Underwriting in these two sectors registered a growth of 10% and 6% respectively.
It may be mentioned that Marine Insurance with lower claims ratio was taken as a lucrative segment for the insurance companies. However, in order to increase exposure in this lucrative business, insurance companies have slashed down their rates consequently affected the gross premium growth of this segment.
The automobile industry was considered as the most vibrant sector so far on the economic scenario with an appreciable performance to ignite a spark in various allied sectors including vendor industry as well as the financial and insurance industry. However, the declining car financing for quite sometimes has started to affect the Motor business growth. It seems that the declining trend may persist in the days to come as well because the increasing number of defaults and non-performing loans of the banking sector in the current financial year 2008. Except Islamic Banks, most of the conventional banks are giving a second thought to car financing and making amendments in their products for car financing in order to be more cautious and prudent in credit disbursement strategies. In this backdrop, it is feared that the insurance industry might also be feeling the pinch.
Generally speaking, the general insurance performance witnessing tremendous growth which was seen attaining the level of 45% of GDP with insurance density calculated at US$3.7.
Adamjee Insurance which has positioned itself on top of the insurance scenario moved to the status of the largest non-life insurance company with a gross premium of Rs9.38billion to its credit. In terms of performance the other stake holders are EFU general and new Jubilee with
Underwriting businesses at Rs8.9billion and Rs3.4billion respectively during the year 2007.
FALL OUT OF DISTURBANCES
Almost all the insurance companies engaged in non-life business had to face the music in the wake of political disturbances and law and order situation which had an adverse fall out with the increase in claims increased to the level of 71% as against 63% previously.
It is said that all major insurance companies witnessed losses in Fire and Marine business in 2007. The losses incurred to the insurance companies in fire and marine business on the back of law and order erupted following political disturbances.
The losses incurred by fire claims however were made up through capital gains on the back of unusual performance of the capital market in Pakistan.
the insurance sector went through a major reform process during last five six years and resultantly direct insurance premiums (excluding reinsurance premiums receivable by PRCL) have grown by 22% per annum over the past five years.
As a result of this high growth in premium insurance penetration has improved yet there is a lot of room exist for improvement especially in the area of life insurance where Pakistan has a much lower penetration (0.27% of GDP) as compared to India (2.53% of GDP) and even Bangladesh (0.42% of GDP).
THIRD PARTY INSURANCE
The general insurance industry has taken a serious note of what they called the bogus insurance companies issuing spurious Motor Vehicle Third Party Insurance Policies for motor vehicle registration purposes.
The care taker Prime Minister made a historic decision that no bogus insurance companies would be allowed to trifle with the serious business of third party insurance which causes serious social repercussions for the persons affected.
Before handing over the charge to the newly elected prime minister, the care taker Prime Minister issued directives to Securities and Exchange Commission of Pakistan (SECP) to examine ways to prevent the issue of bogus policies by fake insurance companies and ensure that third party insurance policy would be issued by the registered insurance companies.
It was a good decision on the part of the caretaker government, however it yet to be seen how the newly installed government execute this decision which in the larger interest of the society.