November 17, 2006	Friday	Shawwal 24, 1427

KARACHI, Nov 16: Core earnings of non-life insurance companies for the nine months ended September 30, 2006 were spoiled by claims arising out of damages due to floods and the perennial losses in the motor business.

The insurance sector posted a growth of 31.2pc in their net profits amounting to Rs6 billion for three-quarters ended September 30, 2006, compared to Rs4.6 billion earned in the same period last year. The figures represent those of 18 of the 26 companies listed on the insurance sector at the Karachi Stock Exchange. Results of remaining eight companies were undisclosed during the reporting season that concluded a fortnight ago.

Numerous companies did not do so well in their core business of underwriting. But the increase in income from investments helped to mitigate the impact of decline in underwriting business. A brighter bottom-line, therefore, is to be credited to investment of surplus funds in lucrative avenues.

Analysts at Arif Habib Securities observed that decline in underwriting income had been witnessed on account of increase in claim ratio under the category of flood claims and the motor business. The companies may have little to complain about the fire and marine business, but motor losses here and abroad have even pushed big names on the sector to the edge of precipice. Overall, the sector gained substantially from generous dividends distributed by the corporate sector and high yield from fixed income securities.

Looking forward, analysts thought there was considerable growth for the insurance business in the country. Pakistan’s non-life insurance density [premium per capita] is only $2.8 or 5.8 per cent of the average density in the Asian region for the year 2005, thus showing potential upside.

China, Iran, India and Sri Lanka have an insurance density of $15.8, $33, $4.4 and $9.4, respectively. “A robust financial system will help facilitate accumulation of more premiums and increase insurance density in the long run,” the analyst hoped.

Up to the first half of the current year ended June 30, 2006, the sector had revealed profit growth of staggering 95 per cent. Analyst Muzzamil Mussani, who tracks the insurance sector for JS Capital Markets, stated that companies on the sector were reaping the benefits of a growing economy. Rising per capita income, infrastructure developments, growing industrialisation and improved trading activities were mentioned as the main reasons that had brightened up the bottom lines of insurance companies in recent times.

For 1H06, combined profitability of sample companies stood at Rs2.8 billion compared to Rs1.5 billion in 1H2005 reflecting growth of 95 per cent. Underwriting profits of the sector improved by 14 per cent to Rs1 billion, but even up to 1H06, major chunk in profitability was contributed by investment income, which climbed by 124pc to Rs2.4 billion.

Net premium of the sector soared by 40 per cent to Rs7.8bn in 1H2006. However, this growth was not fully translated into the underwriting profits due to higher claim ratio of 61 per cent compared to 57 per cent in the corresponding period of last year.