HAVING achieved a market capitalisation of Rs127bn, the non-life or general insurance companies are poised for further growth. Big among them are striving to become bigger by diversifying their business and products.

Many analysts believe that going forward, the sector could also see consolidation with weak firms forced to leave the scene.

From the traditional underwriting in marine, fire and motor, most general insurance companies have launched new products to capture a bigger share of a competitive market.

Now they have livestock insurance, travel insurance and other retail products in their portfolio.

Both general and life insurance companies have started to write policies under the Shariah-compliant ‘Takaful’ so as to broaden their business base. Today, insurance companies that are covering all three — general, life and Takaful, stand tall among others.

Companies have also been diversifying. IGI Insurance Company, a unit of the Packages group acquired 70pc controlling shares in American Life Insurance a few years ago.

Many others are attempting to secure footprints in the life insurance sector to augment earnings. A comparatively smaller, Crescent Insurance Co has ventured into food franchising, steel and tracking business.

Although some companies write insurance policies covering ‘terrorism’, the enthusiasm among most is lacking, understandably due to the huge risks involved. Quite a few companies do offer cover for kidnapping and ransom; riots and civil commotion; malicious damage, explosions, earthquake and burglary.

Insurance companies have a penchant to offer cover of high risk business only to financially sound individuals and for corporates that agree to cede other less risky business also to them — such as fire, motor and general insurance.

Until a few years ago theft of vehicles was a bane and insurance companies declined to offer cover for motor insurance and when they did, it was to strong corporate clients and the premiums were formidable.

The Pakistan Economic Survey 2014-15 concedes that the insurance industry is relatively small compared to other developing economies in the region.

According to the survey, the non-life insurance sector comprises 42 insurers, including three general Takaful operators and one state-owned insurer, the National Insurance Company Limited (NICL), — with an exclusive mandate to underwrite public property — and one state-owned reinsurer, the Pakistan Reinsurance Company Limited (PRCL).

The survey notes that during 2014-15, the non-life insurance market remained dominated by top four players with over 62pc of the market share, while the remaining 38pc was shared among the 36 insurers.

The Insurance Division at the Securities and Exchange Commission of Pakistan also admits: “The insurance penetration and density remained very modest as compared to other jurisdictions while the insurance sector underdeveloped relative to its potential.”

According to the ‘Insurance Association of Pakistan year book 2015’, there are 38 non-life insurance companies in Pakistan which wrote gross premium of Rs62bn during 2014, but that premium amounted to just 0.26pc of country’s GDP.

A significant feature that catches the eye of the analysts in insurance stocks is the strong growth and the companies’ policy of maintaining a fair balance between retention of earnings and distribution of dividends to their shareholders.

The profitability of the country’s non-life sector grew 41pc to Rs10.5bn in financial year 2015, which analyst Umair Naseer at Topline Securities attributes to “strong growth in investment income and improved underwriting income”.

After adjusting for a one-off provisioning reversal of Rs1.9bn booked by EFU General Insurance, against its associate, profitability of the sector grew by 63pc to Rs12.2bn in 2015. IGI, Adamjee and EFU, which together command 64pc of the insurance sector’s earnings, showed growth of their profit by 57, 36 and 28pc, respectively.

Insurance companies, to a great extent depend on income from investments to augment their bottomline. During 2015, investment income of non-life insurance companies increased by 29pc to Rs7.7bn, driving the overall profitability of the sector.

Due to higher dividend income declared by corporates and earnings from capital gains in a reasonably bullish market, the equity portfolio of most insurance companies fetched fattened investment income.

The core business by non-life insurance companies provided 39pc increase in underwriting business amounting to Rs5.6bn. “This is in continuation of an impressive growth of 72pc seen in 2014,” said a sector watcher. Adamjee Insurance Company is one of the largest in the sector with market capitalisation of Rs19.3bn. With paid-up shares at 350m, the company maintains a significant free float.

For the recently reported annual results ending Dec 31, 2015, the company posted an after-tax-profit at Rs2.6bn, translating into earnings per share at Rs7.30, up 36pc over the previous year. The company announced final cash dividend at Rs1.50 per share. Analyst Fahad Irfan at Alfalah Securities rated the results below expectations due to lower fourth-quarter underwriting and investment income.

Published in Dawn, Business & Finance weekly, April 18th, 2016