The non-life insurance sector, containing 21 insurance companies, has shown accumulated decline of 9 percent on year-on-year basis in profits during CY10. "The bottomline decline was mainly pushed by a significant fall of 32 percent in the sector's core insurance business amid higher claims primarily due to flood hitting the country in August 2010", analysts said, adding that investment income also declined by 21 percent during CY10.
On a sample of 21 out of 22 listed non-life insurance companies on the KSE, representing 100 percent of the sector's market capitalisation, IGI Insurance recorded a massive 217 percent jump in profits while three companies booked net losses during the period under review, Mazhar A Sabir, analyst at Invest Capital and Securities, said. However, despite the prevailing situation in the country, four companies managed to book profits, whereas the same companies had posted losses during previous year, he added.
In CY10, total net premium (gross premium minus reinsurance arrangements) of the non-life insurance companies stood at Rs 23 billion, showing an appreciation of 3 percent on year-on-year basis, far better than previous year's decline of 4 percent. "This growth, however, could not trickle down to the underwriting results owing to 10 percent on year-on-year basis increase in total claims that reached Rs 15 billion during CY10, amid poor law and order situation in the country in addition to devastating flood", he noted.
He said that the decline in underwriting results (core income) of 32 percent of the non-life insurance sector, coupled with higher claims and expense ratio, resulted in the combined ratio (Profitability Measure Ratio) of the sector reaching at 93 percent in CY10, as against previous year's 88 percent.
He said that investment income also did not support bottomline of the sector during this period. According to him, the investment income (dividend income plus capital gains) always play a major role in the bottomline of non-life insurance companies. In CY10, investment income declined by 21 percent despite better performance of equity market during last quarter where it increased by 20 percent, whereas an increase of 28 percent during the year was realized. Moreover, 4 percent increase was observed in the general and admin expense during CY10.
He said that amid slowdown in the economic activities and poor law and order situation of the country the insurance sector is likely to remain inactive. Apart from core business of the insurance sector, the equity market condition remains covered up, providing little room for growth in investment income. However, shifting of the insurance sector's investments from equity market to fixed income side can provide them with a stable return in near future.
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