Non-life insurance sector's profitability nosedives by 32 percent

Profitability of listed non-life insurance sector during third quarter of 2017 was down 32 percent on year-on-year basis to Rs 1.9 billion due to sharp fall in investment income. Investment income of the sector that remains a major contributor to sector's profitability, was down by 54 percent on year-on-year basis to Rs 1.0 billion in the third quarter of 2017.
Major contributor to this decline was Adamjee Insurance as its investment income was down 50 percent to Rs 725 million as capital gains on equities dropped to Rs 311 million against Rs 934 million in the same period last year, an analyst at Topline Securities said. It should be noted that KSE-100 index is down 15 percent in the calendar year 2017. EFU General Insurance (EFUG) and Jubilee General Insurance (JGICL) also recorded dip in investment income, down 45 percent and 58 percent, respectively.
Underwriting income of the sector remained flat at Rs 1.6 billion in the third quarter of 2017 as claims and expense ratio were on the higher side during the quarter. Net premium of the sector grew by 3 percent to Rs 9 billion driven by higher premiums recorded by AICL and EFUG in the third quarter of 2017. This is mainly attributed to higher motor insurance owing to increase in car sales and imports.
Claims on the other side rose by 15 percent to Rs 4.6 billion taking claims ratio to 50 percent in the third quarter of 2017 as compared to 49 percent during the same period last year. EFUG claims expenditure climbed by 47 percent to Rs 0.8 billion while their claims ratio increased to 38 percent (30 percent in Sep 2016). United Insurance (UNIC) also recorded 56 percent increase in claims, clocking in at Rs 329 million.
Alongside higher claims, underwriting expenses were also up 11 percent keeping check on underwriting income growth. Non-life insurance sector also saw higher effective tax rate during the quarter which stood at 31 percent in Sep 2017 against 24 percent in Sep 2016. As per FY17 federal budget, all income sources for insurance sector were subject to corporate tax rate (31 percent) instead of reduced rate of tax on capital gains and dividend income, which led to higher taxation during the quarter.
Company wise analysis indicates that EFUG reported flat earnings growth where AICL and JGICL's earnings were down 58 percent and 37 percent, respectively. The analysis is based on the data of all listed non-life insurance companies excluding IGI Insurance (IGIIL) which has not announced results for the third quarter of 2017.