A brighter year ahead for insurers

Insurance stocks have been the silent gainers for the past four years - silent because of their lack of visibility and thin volumes compared to other sectors. Since 2012, the sector has yielded returns north of 50 percent a year on average, outpacing the benchmark index handsomely.

Premiums and profitability growth has been stellar for the industry lately. Lack of insurance penetration has proved to more of an opportunity for insurers - an unfilled gap - rather than a headache. The sector as a whole - life and non-life combined - has seen net premiums grow at an annual pace of 19 percent in the last half decade, outpacing claims at 13 percent while profits have soared at a hefty 33 percent rate.

Life insurance has been the outright pick when it comes to operational performance in prior years. Steep top and bottom line growth is set to continue for the segment in 2016. Shariah-compliant products, which

conventional insurers were allowed to offer only last year, will gather popularity. Going forward, such products might help raise insurance penetration rates more than any other factor. Taher Sachak - EFU Life chief executive told BR Research that he expects Takaful operations to account for 15-20 percent of the premiums after five years.

National Health Program is potentially another growth driver for the life insurers. Currently, State Life has hold of the first government contract but private sector firms might soon follow suit as the program expands.

Growth has been relatively slow for genera insurers amid unimpressive GDP growth in recent years. The China Pakistan Economic Corridor is deemed to be a game changer for many sectors; it will create business opportunity for non-life insurers. According to analysts at Alfalah Securities, the annual insurance expense for a megawatt of power generation capacity hovers around Rs0.85 million. If the CPEC adds 15,000 MW to the national grid, it would give incremental revenue (gross premium) of Rs12.8 billion to insurers in the coming years.