Non-life insurance profits up 19pc YoY in 2019

Karachi, April 07, 2020: The profitability of the non-life insurance sector during 2019 was up 19 percent YoY on the back of sharp rise in their investment income.

For our analysis, we have taken data of nine listed non-life insurance companies, accounting for ~80 percent of non-life insurance market capitalization.

The investment income of the sector grew by 24 percent YoY, largely on account of gains on investment in Fixed Income instruments due to decline in interest rates.

The investment income of the non-life insurance companies accounts for ~50 percent of the their overall profitability.

However, their core business, remained under pressure as Underwriting Income witnessed a decline of 25 percent YoY.

The non-life insurance companies witnessed an increase of just 6 percent YoY in their Net Premiums largely due to overall slowdown in economic activities.

Adamjee Insurance (AICL), which accounts for ~42 percent of the sector’s net premiums, witnessed an increase of 12 percent YoY driven by Fire and Property damage segment followed by Motor Insurance (outside Pakistan).

The highest growth in Net Premiums was recorded by Century Insurance (CENI) at 13 percent YoY.

In comparison Net Claims increased by 12 percent YoY, while Net Expenses and Management Expenses grew by 5 percent YoY and 6 percent YoY, respectively.

The claims ratio deteriorated to 55 percent in 2019 compared to 52 percent in 2018.

AICL claims increased by 18 percent YoY with claims ratio edging up to 64 percent in 2019 from 61 percent in 2018. EFU General (EFUG) claims expenditures climbed by 15 percent YoY, while their claims ratio increased to 48 percent in 2019 from 41 percent in 2018.

However, the underwriting expenses of the sector grew by just 5 percent YoY, bringing the expense ratio down to 22 percent in 2019 from 24 percent in 2018.

Given the economic slowdown, the core function of the sector suffered with limited Net Premium growth, whereas the claim ratio too deteriorated. The Investment Income, which historically has been driven by the stock market performance, found support from fixed income segment.

We expect a similar trend in 2020, where we can expect muted growth in Net Premiums due to economic implications of the Covid-19 outbreak. We expect GDP to grow by just 0.0-0.5 percent YoY in FY20, where in the worst case scenario the economy can shrink by up to 1 percent YoY.

With earlier-than-expected cuts by the Central Bank in Policy Rate, we can potentially see further gains in Investment Income through Fixed Income instruments.

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