GENERAL INSURANCE SECTOR'S UNTAPPED POTENTIAL

SHAMSUL GHANI
(feedback@pgeconomist.com)
Feb 22 - 28, 2010

The insurance business in Pakistan has remained under stress particularly during 2003-05, when the number of foreign insurance companies in both life and non-life sectors decreased. Despite having immense growth potential, this sector has lagged behind for a variety of reasons. It has failed to develop in tandem with the overall financial sector, particularly the banking sector. Insurance sector assets have grown from Rs.150 billion in CY-03 to Rs.401 billion in CY-08. In sharp contrast, the banking assets stood at Rs.5032 billion at the end of calendar year 2008.

Presently, out of 42 insurance companies 34 companies, including 3 public sector companies, are in the general insurance business.

OPERATIONAL RESULTS OF GENERAL INSURANCE COMPANIES AS OF JUNE-09 (RS IN MILLION)

SERIAL NO COMPANY NET PREMIUM
REVENUE
PRETAX
PROFIT
EARNING PER
SHARE (RS)
PAID-UP
CAPITAL
TOTAL
EQUITY
TOTAL
ASSETS
1 Adamjee 3064 587 - 1125 8924 19430
2 Alfalah 150 1 (0.19) 230 258 944
3 Alpha 33 5 0.24 162 236 487
4 Asia 16 14 0.56 160 193 388
5 Askari Gen 398 (39) (1.91) 204 257 1349
6 Atlas 225 107 2.47 335 642 1514
7 Central 6 (1001) (49.51) 203 3163 3314
8 Century 100 (39) (1.18) 457 868 1287
9 Cooperative 11 4 - 160 170 940
10 Crescent 58 (22) (1.89) 121 87 272
11 East West 201 (335) (14.82) 228 528 908
12 EFU Gen 2789 203 1.22 1150 9872 23020
13 Excel 6 (18) - 160 164 212
14 Habib 178 51 1.18 400 666 1500
15 IGI 285 775 11.05 599 11418 13257
16 New Hampshire 199 39 - - - 1899
17 New Jubilee 1141 319 3.88 659 2220 6869
18 Pakistan Gen 56 98 4.93 200 366 565
19 PICIC 100 22 0.61 350 230 1020
20 Premier 158 (72) (2.78) 263 1648 2774
21 Reliance 159 23 0.70 253 373 947
22 Saudi Pak 70 (3) (0.11) 325 197 634
23 Security Gen 58 (518) 00.00 681 5943 7036
24 Shaheen 254 15 0.65 175 219 917
25 Silver Star 98 56 2.39 211 372 560
26 TPL Direct 98 (4) (0.13) 310 208 416
27 UBL Insurer 141 (67) (1.37) 300 86 706
28 United 285 93 2.57 345 573 885
29 Universal 182 (3) (0.04) 210 256 740
  TOTAL 10519 291 (41.48) 9976 50137 94790

The financial statistics of 29 general insurance companies in the private sector (figures for Agro Gen and Capital Insurance not available) represent a rather dismal view of insurance sector vis--vis the banking sector. Out of 29 companies, 12 have reported pre-tax losses. The cumulative negative EPS of Rs.41.48 shows that majority of shares are overpriced. The sector composition is highly uneven with three (Adamjee, EFU and New Jubilee) of the total 29 companies accounting for 66.5 percent of the total net premium revenue.

Moreover, five (Adamjee, EFU, New Jubilee, IGI and Security General) out of the 29 companies account for 73 percent of the total assets. This scenario affords unfair competitive edge to a few large size companies against the remaining 24 small and medium size insurers who must offer extra incentives to the prospective clients in order to remain in business. This in turn dents their bottom line. The SECP must take measures to provide even playing field to all insurance companies.

The recent global financial crisis has evoked serious criticism of Basel I & II that were meant to regulate the banking sector. Similar regulatory frameworks known as Solvency I & II to address the insurance sector's risk management problem were put in vogue in the European Union. Solvency I introduced in 1970 has now been replaced by Solvency-II. The global financial analysts taken aback by the recent collapse of world financial systems are not prepared to accept any so-called regulatory framework without fully understanding its ramifications. Likewise, Basel II, Solvency-II has also come under the scanner of analysts. Solvency II is a tri-pillar protective construction for the insurance sector. First is the quantitative aspect that determines the size of capital an insurance company must have. Second is the qualitative aspect that deals with the governance and risk management capability of the insurers. And third is the transparency aspect that sets levels and extents of disclosures.

Besides preparing ground for fair market competition, SECP would do well to take lead from what is going on around the world to safeguard the insurance sector against rapacious onslaughts of speculators and quick buck makers. Efforts to bring in foreign investment need to be based on long-term interest of the sector.

Pakistan's insurance sector has huge potential to grow. Lack of product innovativeness and cramped outreach are basic reasons behind its poor performance. The cartel of large companies taking advantage of its cumulative size has put its reliance on high tariffs instead of base broadening through extended outreach and synergy creation through business partnerships with other sectors, namely banking, agriculture, and education. These partnerships will automatically lead the way to high quality product innovativeness.