Non-life insurance sector profits up by 5pc, net premiums drop 5pc

KARACHI: The profitability of the non-life insurance sector during 2020 was up 5 percent on year-on-year basis, largely because of lower effective tax rate (profit before tax down 4 percent).

The underwriting income declined by 5 percent to Rs2.9 billion in 2020 from Rs3.0 billion in 2019, however, it was somewhat mitigated by 11 percent rise in sector’s investment income to Rs5.4 billion. To highlight, investment income accounted for 78 percent of the overall profitability of non-life insurance companies, as per 2020 results.

The underwriting income came under pressure as net premiums dropped by 5 percent in 2020 largely due to slowdown in economic activities amidst Covid-19 and lockdowns.

The rise in investment income of the sector was largely due to gain on sale of equity portfolio and gain on fixed income instruments due to sharp decline in interest rates, Sunny Kumar at Topline Securities said.

In full year 2020, equity market (KSE-100 index) went up by 7 percent, while was up by 61 percent from its bottom on March 25, 2020, while the policy rate declined by 625bps in 2020.

Among the top three companies based on market capitalisation, Adamjee Insurance (AICL) which accounts for 36 percent of the sector’s net premiums and Jubilee General (JGICL) which accounts for 16 percent of the sector’s net premiums, witnessed declines of 14 percent and 6 percent respectively, primarily driven by Motor Insurance inside and outside of Pakistan.

However, EFU General’s (EFUG) which accounts for 23 percent of the sector’s net premiums, witnessed an increase of 14 percent in its net premiums due to increase in fire and property insurance.

Net claims of the sector declined by 8 percent to Rs19.3 billion in 2020, which is greater compared to decline in net premiums by 5 percent during the year.

Sector’s claims ratio came down to 53 percent in 2020 compared to 54 percent in 2019.

Claims expenditures of EFU General (EFUG) and Jubilee General (JGICL) climbed by 23 percent and 8 percent respectively, while their claims ratio increased to 51 percent and 62 percent in 2020 respectively.

However, AICL claims declined by 19 percent with claims ratio coming down to 60 percent in 2020 from 64 percent in 2019.

“Going forward in 2021, we expect core business to depict positive results, where we expect recovery in net premiums due to economic recovery post lockdown,” Sunny Kumar said.

Motor segment accounts for 32 percent of total general insurance premiums. “Given that the eight months of FY21 car sale numbers have increased by 55 percent, we expect the upbeat trend will push premiums up,” he said.

The other notable segment of fire insurance is also likely to pick up as industrial activity improves, again evident from the Large Scale Manufacturing (LSM) which has increased by 7.85 percent in 7MFY21, he added.

This analysis is based on twelve listed companies, accounting for 83 percent of Non-life insurance market capitalisation.

Copyright Business Recorder, 2021