Premier Insurance

Thanks to the vision of the first State Bank's Governor to lay the foundations of a Pakistani insurer, Premier Insurance came into being in 1952. The insurer has evolved over time and maintains its presence while being listed on all stock exchanges of the country. Premier has on offer specialised insurance, engineering insurance, marine insurance, miscellaneous insurance, group health insurance, property insurance, motor insurance, shop owner's insurance, travel insurance and personal accident insurance.
2015 - Not so pleasing so far: Declining premiums and rising claims imply that the management has a lot to work on. Premiums during the quarter inched down a tad suggesting loss of business by the insurer, however, claims kept on spiralling taking the claims ratio up by 200bps. Considering that the insurer played weak in terms of its core business operations, underwriting results ended up in red yielding losses to the tune of Rs 2 million as opposed to a profit of Rs 3 million in the corresponding period last year.
However, thanks to its investment portfolio that continued to play an eminent role in churning healthy investment inflows. Given that the contribution from its core insurance business remains inadequate, investment income rescued the bottom line from dropping further. Investment income ratio stood at 23 percent during the quarter ending March 2015.
Motor segment contributed the major share of 46 percent to net premiums, followed by fire and property (29 percent), others (16 percent) and marine, aviation and transport (9 percent).
A look at Premier's historical performance: Until 2014, the insurer's profitability struggled with persistent decline in its bottom line. Though, its premiums kept on growing. This profitability decline is, however, attributable to the persistent downfall in the firm's investment income. By now, it's no surprise that the firm garners bulk of its profitability growth through its investment income stream and it's not an unusual trend in the industry. Most of the non-life insurers continue to place heavy reliance on their investment portfolios.
Nonetheless, Premier Insurance made a roaring comeback in 2014 with its bottom line reversing earlier losses as its bottom line posted a profit after taxation of Rs 34 million. And this is despite of its withering investment income that fell by nearly 16 percent during the year. Needless to say, it's a good sign that the profitability stemmed solely from the improvement in its core insurance operations during the year with massive reduction in claims serving as the guardian angel. Claims ratio tanked to 50 percent from 88 percent in 2013 and as a consequence its underwriting losses narrowed down to Rs 9 million from a whopping Rs 224 million in the preceding year. But it's the sustainability in claims management that matters as one-off reductions in claims expenses cannot be expected to spruce up future underwriting profits. On the other hand, shrinking dividend income and sliding gain on sale of investments took away the charm of its investment portfolio as its investment income ratio fell by a hefty 500bps to 21 percent during the year under review.
Investment portfolio: Unlike other insurers where liking is maintained in favour of equities, Premier Insurance's investment portfolio seems well-balanced with nearly 55 percent parked in income and money market mutual funds. The remaining 45 percent represents investment in equities. It should be noted that this share has risen from 37 percent in the preceding year.
Going onwards... While healthy investment income stream can lend a good hand during tough times, an insurer should definitely not be relying solely on it. Healthy business performance in the sense of burgeoning premiums, improving claims management and rising underwriting profits, is what determines the core operational health of any insurance firm. And if the firm is able to uphold and enrich the performance of its insurance business, then it can certainly evolve as any investor's favourite on the stock market.