Non-life insurers’ profit surges 19 percent in 2019

KARACHI: Non-life insurers, listed on stocks market, saw profits surge 19 percent to Rs7.1 billion last year due to a sharp rise in their investment income, driven by high interest rates, a brokerage reported on Tuesday.

The non-life insurance sector’s investment income grew 24 percent year-over-year to Rs5.2 billion in 2019, “largely on account of gains on investment in fixed income instruments due to decline in interest rates,” Fawad Basir, an analyst at Topline Research said. Investment income of the non-life insurance companies accounts for 50 percent of their overall profitability.

The analysis was based on nine listed non-life insurance companies, accounting for 80 percent of non-life insurance market capitalisation. The benchmark interest rate stayed at more than a decade high for over two years before starting to ease this year. The central bank reduced interest rate to 11 percent from 13.25 percent in two steps in a week last month.

The non-life insurance sector’s core business remained under pressure as annual underwriting income was seen falling a quarter to Rs2.9 billion. Net premiums increased six percent to Rs36.5 billion, largely due to overall slowdown in economic activities.

“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,” Basir said. “We expect GDP to grow by just 0.0-0.5 percent in FY2020, where in the worst case scenario the economy can shrink by up to 1 percent. 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.”

Adamjee Insurance, which accounts for 42 percent of the sector’s net premiums, witnessed an increase of 12 percent, driven by fire and property damage segment followed by Motor Insurance (outside Pakistan). Century Insurance recorded the highest growth of 13 percent in net premiums.

In 2019, net claims increased 12 percent to Rs20 billion, while net and management expenses grew five percent to Rs3 billion and six percent to Rs11 billion, respectively. The claims ratio deteriorated to 55 percent in 2019 compared to 52 percent in 2018.

Adamjee Insurance’s claims increased 18 percent with claims ratio edging up at 64 percent in 2019 from 61 percent in 2018. EFU General’s claims expenditures climbed 15 percent, while their claims ratio increased to 48 percent in 2019 from 41 percent in 2018.

However, the underwriting expenses of the sector grew five percent, 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,” Basir said. “The investment income, which historically has been driven by the stock market performance, found support from fixed income segment.”