Declining premiums main concern for AICL

The general insurance business is not likely to be hurt more than the economy, as a result of the slowdown, as net premiums of a general insurance company historically grow in line with the nominal GDP growth. But this is not the case for the countrys biggest insurance company, Adamjee Insurance; net premiums have increased by a mere one percent to stand at RS 3,577 billion in 1HCY09.
The recession is showing greater strain on AICL, resulting in its net premium revenue for the last quarter to decline by 6 percent, YoY. This also indicates the negative growth in business activities in the private sector. However, for AICL, an improved claim ratio (from 63% in 1HCY08 to 75% in 1HCY09) rescued the underwriting results - increased by 13 times to stand Rs 401 billion.
However, 82%, YoY, decline in investment income has eaten all the gains. But that is due to a one time, exceptionally high gain booked by the company last year on account of selling its stake in MCB to May Bank. AICL profits are down by 81 percent to stand at Rs 5.16 per share for January-June 2009. The company has also paid cash dividend of Rs 1.5 per share.
Going forward, we expect the investment income to normalise with 60-70 percent shares in operating income (58 percent for 1HCY09 versus 99 percent in 1HCY08). The claims, like a pendulum, will keep on oscillating. The major worry for companys management is to take net premiums back on the same track as of nominal GDP growth.

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ADAMJEE INSURANCE

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Rs (mn)                2QCY09   2QCY08   % chg   1HCY09   1HCY08   % chg

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Net premium revenue     1,791    1,899     -6%    3,571    3,520      1%

Net claims              1,128    1,265    -11%    2,267    2,667    -15%

Underwriting results      202      205     -2%      401       30   1228%

Investment income         175    2,684    -93%      560    3,026    -81%

Profit after tax          141    2,910    -95%      583    2,998    -81%

EPS (Rs)                 1.25    25.08    -95%     5.18    26.66    -81%

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