60 years of Pakistan insurance industry

Non-Life insurance in Pakistan has taken giant strides during the last 60 years. At the time of establishment of Pakistan, no insurance facility, as such, was available in the country because Pakistan's inheritance of insurance, like other industries was five indigenous insurance companies.
Added to this total were two more companies, Habib Insurance of Bombay and Eastern Federal Union Insurance of Calcutta (now EFU General Insurance). Against these seven local Insurers, there were 77 foreign companies to cater to the insurance needs of the country. As such, foreign insurers had the upper hand in acquiring the major portion of insurance business.
Realising the need of promoting indigenous insurance industry the government of Pakistan established Pakistan Insurance Corporation (PIC) in 1953 under the Pakistan Insurance Corporation Act of 1952. Initially making it compulsory to cede ten percent of all insurance business underwritten in Pakistan, to PIC with a view to making it stand on its feet. This cession of 10% was increased to 30% in 1958.
Further, to arrest the flow of foreign exchange in the shape of reinsurance to foreign reinsurers, the government under the Compulsory Surplus Reinsurance Act, 1976 directed all insurers, foreign as well as local , to cede 25 percent of the remaining 70% to PIC, which later on from 1-1-1993 increased to 35% from 25%. Similarly, changes were done in the compulsory cession of 30% to PIC from time to time and in January 1, 2005 this cession was completely done away in view of the sound growth of insurance industry.
In the face of stiff competition from foreign insurers, the indigenous insurance companies sponsored National Co-insurance Scheme (NCIS) in 1955, a pool of Pakistani insurers to effectively drive out foreign insurance companies. The primary aim of NCIS was to help smaller local companies grow and present powerful competition to foreign insurers. Motivated by the desire to have neutral party in the interest of equity and justice, the local insurers appointed PIC as secretaries. The NCIS produced desired results and indigenous companies began to grow, both in number and in business.
In 1976, the number of foreign companies declined from 77 in 1947 to 25 and premia under NCIS soared from Rs 600,000 in 1958 to Rs 120 million in 1971. Consequent upon the government policy of nationalisation, NCIS was converted into National Insurance Corporation (NIC) in 1976 to write the assets of the public sector only.
In December 1971, East Pakistan broke its links and became an independent sovereign state, Bangladesh, depriving the Non-Life premium of Rs 290 million of that region. Out of this total of Rs 290 million, the share of foreign insurers was Rs 60 million, West Pakistani companies of Rs 180 million and East Pakistani companies of Rs 50 million.
In the sector of life insurance the total sum assured stood at Rs 12.90 billion in 1971 as against Rs 130 million in 1949. In March 1972, when life insurance was nationalised, the assets of life fund amounted to Rs 1.30 billion, annual receipts of Rs 337 million and the total number of life policies enforced was 357, 413.
And then in 1979, another dent landed on the private sector insurers in the shape of imposition of tax on exceptional loss reserves, which used to be tax free. These reserves still remain taxable. Nationalisation policy of the seventies of the government further brought horde of miseries on the dented and bruised insurance industry. 31 industries, along with ghee mills, shipping, banks, petroleum marketing companies, automobile, etc were bracketed under the umbrella of public sector and which, in turn, gave a loss of Rs 353 million to the private sector insurance industry.
Despite deep cuts and heavy slashing inflicted upon it by a government obsessed with nationalisation during seventies did not deter the insurance industry from the path of progress. The spectacular revival and growth of private sector insurers amply demonstrate its professional and managerial skill when it registered a constant growth from Rs 290 million of premium in 1973 to Rs 335 million in 1976. Rs 820 million in 1980, Rs 3.357 billion in 1990, Rs 31.25 billion in 2005 and Rs 38.45 billion in 2006.
Realising that the Insurance Act of 1938 has become archaic and had lost all its effectiveness, the government of Pakistan decided to repeal the Act and promulgated the Insurance Ordinance, 2000 on August 19th, 2000 to strengthen the insurance industry by regulating it effectively. By virtue of this new Act, the Department of Insurance, headed by the Controller of Insurance under the Ministry of Commerce was abolished and the charge of the entire insurance industry for monitoring and regulating was given to Securities and Exchange Commission of Pakistan (SECP) under the Ministry of Finance. This new regulation has brought the fool proof regulatory procedures to provide full protection to policy holders as well as to arrest the malpractices rampant in the industry before the advent of this new Act of 2000. So far, SECP has been performing satisfactorily.
Dismal law and order situation has played havoc with motor insurance. The menace of hijackings of vehicles and cell phones has crossed all proportions. The average is about 25 to 27 vehicles per day and cell phone snatching is more than 2000 per day. Since March 2007, due to the turmoil of the judiciary and subsequent lawyers' protests have further aggravated the law and order scenario. It has adversely affected the growing trade and industry of the country, which will make a big dent on the results of insurers for the year 2007. Surprisingly the insurance industry, private as well as public, was not daunted by the above abysmal situation. It has on account of its resilience maintained its vertical growth, premium-wise as well as profit-wise.
Over- all performance of insurance companies has been very satisfactory, if it had not been so, the insurers would have not been able to declare the following dividends during 2007:
-- EFU General - 30% cash and 100% bonus (2006 figures)
-- Atlas Insurance -70% cash and 30% bonus
-- Habib Insurance 60% cash and 20% bonus
-- Askari Insurance -30% bonus
-- Central Insurance 20% cash and 20% bonus
-- New Jubilee insurance-15% cash and 20% bonus
-- PICIC Insurance 75% right share
-- Premier Insurance 20% cash and 20% bonus
-- Reliance Insurance 30% bonus
-- Adamjee insurance 28% cash and 12.5% bonus (2006 figures)
-- Silver Star Insurance-35% bonus
-- Universal Insurance-40% bonus
The total gross non-life premia of private sector and public sector insurers in 2006 increased to Rs 38.45 billion from Rs 31.25 billion in 2005, which was the record growth. In 2007, as the survey has been carried out by Global Capital Limited (Business Recorder 4-9-2007) that "the non-insurance sector of the country depicted a handsome growth of 17 percent in the first half of 2007 on account of soaring trade activities in the country, improving per capita income and competition among insurance companies", the estimated non-life premia would be over Rs 46 billion (public& private insurers).
The private sector companies wrote direct gross premia of Rs 29 billion in 2006 as compared to Rs 22.8 billion in 2005. Estimated premia in 2007 as per the assessment of Global Capital Limited will be in the region of 36 billion. The gross premium of Pakistan Reinsurance Company Ltd ( PRCL) and National Insurance Company Limited (NICL) in 2006 was Rs 4.49 billion and Rs 4.45 billion respectively. Their estimated growth of business in 2007 will be between 15% and 20%.
PRCL and NICL in 2006 earned profits of Rs 783 million and Rs 2.38 billion respectively. Full credit should be given to NICL, which has maintained its business growth as well as profitability despite the active program of the past government's privatisation policy. Total income tax paid by the private and public sector insurers amounts to Rs 2.16 billion as compared to Rs 1.68 billion in 2005. PRCL, NICL and private insurers contributed income tax of Rs 111 million, Rs 837 million and Rs 612 million respectively. Private life insurance companies and State Life Insurance Corporation (SLIC) (state owned) also performed very well.
In 2006, EFU Life surpassed all private life insurers. EFU's net premium was Rs 3.04 billion and profit was Rs 236 million; New Jubilee's net premium Rs 2.07 billion and profit Rs 82.65 million; Alico's net premium Rs 655.04 million and Profit Rs 40.44 million; and Metropolitan's net premium Rs 69.25 million and profit Rs 15.97 million. The annual accounts of the above insurers for the year 2007 are in course of preparation, but it is expected that their 2007 results will be quite satisfactory.
The results of SLIC were very impressive during 2006. Life fund rose to Rs 137 billion in 2006 from Rs 122 billion in 2005, premia income shot up to Rs 15 billion in 2006 from Rs 13 billion in 2005 (includes first year, renewal, group and pension premium), investment income increased to Rs 14 billion in 2006 from Rs 13 billion in 2005 and number of policies (life) were 2, 183, 783 and group life 3,915, 529 in 2006 against 2,044,015 (life) and 3,731, 002 (group) in 2005. Total business in force (Sum assured and bonus) soared to Rs 1.143 trillion in 2006 from Rs 1.040 trillion in 2005.
SLIC 's most laudable effort relates to its selling of life policies actively among rural people which has been neglected by all insurers, whether private or public, in the past and as such the poverty level there had been on the rise instead of decline. I am sure this useful and most needed step of SLIC would go a long way in ameliorating the life of poverty-stricken people.
Besides, the post-Benazir assassination unrest resulted in unprecedented losses for the entire business community in Karachi and Sindh. As many as 92 organisations from small traders to big industrial units have reported losses of Rs 6 billion during the four days of un-rest. 900 vehicles were torched, 174 banks, 20 railway trains, 13 electoral offices and many factories such as Indus Refinery, Island Textile, Pak Suzuki and Afzal Motors etc were either looted or set alight. I am quite sure, these huge losses would not affect the bottom-line of the insurance industry because major share of these claims would be borne by reinsurers.
In the banking sector, Islamic banking has taken quite deep roots in Pakistan within a short span. This riba-free banking has become very popular among the people so much so that their non-interest-bearing banking has also attracted the Pakistan insurance industry towards Islamic insurance ie Takaful. At present four Takaful Insurers are operating. The first Takaful to function is Pak Kuwait Takaful General Ltd sponsored by Pak Kuwait Investment Co Ltd.
Since December 2005, Pak Kuwait Takaful has performed very well. It earned premium of Rs 136 million in 2006 and in 2007 its premia was Rs 276 million. It is a record business for a new insurer in Pakistan. Takaful Pakistan Limited was the second Islamic insurer to arrive on the scene in March 2007. Two more Takafuls have been established during 2007; Pak Qatar General Takaful Ltd and Pak Qatar Family (life) Takaful Ltd and some more are in the pipeline.
Islamic Banking is expanding very rapidly not only is Pakistan but also in the West. This popularity has attracted two largest re- insurers, Munich Re of Germany and Swiss Re of Switzerland for catering the reinsurance needs of Takaful companies operating in the Gulf, Malaysia, and other Muslim countries. Speedy growth of Islamic Banks would lure more Islamic insurers in the country. It is a good omen.
The insurance industry of Pakistan has made spectacular progress in all spheres during the last 60 years. Not only the volume of business has increased, but the technical knowledge has also kept pace with its growth.
Main reason of this exceptional turn-around in insurance industry has been achieved because insurers are evolving new products to cater to the needs of consumers, which was non-existent a couple of decades ago.