Adamjee in a balancing act

Competition. Its the one word that describes the state of affairs in the otherwise relatively cushy business of insurance in Pakistan. Half-yearly results of the countrys largest general insurer provide an accurate picture of the competitive market.
Adamjee Insurance Limited (AICL) announced a dividend of 10 percent for the six months ending June 2010. But investors were not convinced of the companys performance as the stock fell Rs3.74, hitting the lower circuit by falling 5 percent at the local bourse on Wednesday.
The threat of a sagging economy has played out on premiums at AICL. With both premiums and claims falling in step by 4 percent, the loss ratio for the firm - claims as a percentage of revenues - has increased by 40 bps to almost 64 percent.
Industry sources told BR Research that the target general insurers loss-ratio hovers at around 70 percent in the Pakistani market.
Senior management at AICL confirmed that so far, it has not received any claims in connection with the recent floods. But being the leading crop insurer, the company expects claims to flow through in the on-going quarter.
Additionally, Adamjee is the insurer of at least two power plants - AES Lalpir and Pak Gen. But the company is confident that flood-related claims will not significantly impact performance in the second half of 2010.
The biggest hit to the insurer was a nosedive in investment income. It fell a whopping 60 percent in the first half of 2010, compared to the corresponding period last year.
"Impairment reversals of Rs 230 million in the last year and provisioning of Rs100 million this year, have had a combined affect of the fall in investment income" said Mudassar Zubair, CFO of AICL.
On a positive note, the company did well to restrict its administration expenses to an increase of just below 1 percent despite sticky inflation of around 12 percent. AICL will have to think up innovative strategies to improve its market position in these tough times.

================================================================

Adamjee Insurance P&L

================================================================

Rs (mn)                             1HCY10      1HCY09     % Chg

================================================================

Net premium revenue                  3,431       3,579       -4%

Net claims                          (2,187)     (2,267)      -4%

Expenses                              (602)       (597)       1%

Net commission                        (250)       (314)     -20%

Underwriting result                    392         401       -2%

Investment income                      223         560      -60%

General and Administration expenses   (291)       (290)       1%

PAT                                    299         583      -49%

EPS (Rs)                              2.41        4.71      -49%

================================================================

Source: Company Result