The burgeoning economy, booming financial sector and the ongoing reforms would provide further impetus to the non-life (general) insurance industry of Pakistan and expected that in next five years gross premium of the listed companies would be Rs 63 billion from Rs 25 billion in 2005.
Despite 20 percent annual increase in gross premium during last four years, the penetration of non-life insurance is still very low at 0.4 percent, far lower than regional countries, according to the detailed report on the sector issued by JS Capital Markets.
The brokerage says: "we recommend 'Overweight' stance on the under-researched non-life insurance sector as there is high probability that this sector will perform better than the broader market."
Rising industrialisation, improving per capita income, higher investment in infrastructure projects, soaring trade activities, privatisation of public entities and competition amongst the insurance companies is likely to result in a gross premium Cagr (compounded annual growth rate) of 25 percent for the next five-year as per the said report.
The gross premium of listed (inclusive of state owned NIC) non-life insurers, according to JS analyst, was Rs 25 billion in 2005 and is likely to reach Rs 63 billion by 2010. This will help in enhancing the non-life gross premium to GDP ratio to 0.5 percent.
Due to minimum paid-up capital requirement of Rs 80 million for non-life insurance firms the number of non-life insurers has dropped. "Total paid-up capital and equity of our sample non-life insurance companies has improved to Rs 5.7 billion and Rs 25.4 billion from Rs 4.2 billion and Rs 13.2 billion in 2001, respectively", said the report.
Profitability of these insurers has reached Rs 5.7 billion in 2005 from Rs 1.2 billion in 2001, a CAGR of 47 percent. In 2005 alone, earnings jumped by 95 percent.
Very interesting point mentioned in the JS Capital Markets report was that contrary to common perception, contribution of investment income in total income for Pakistan companies was in the range of 55-65 percent in last three years compared to 75-85 percent of leading international non-life insurance companies.
Writing on the key insurance firms the analysis says that Adamjee is Pakistan's largest non-life insurer with 27 percent share in 2005 gross premium. The new management led by Mansha (Nishat) Group, in last two years has tried to improve company's financial health. With its aggressive plans, the company can take full advantage of the rising insurance market and can regain its lost market share. Besides this, Adamjee's equity base and balance sheet footing is getting stronger due to its equity portfolio. On FY06E and FY07E earnings, Adamjee is trading at PE of 8.3x and 6.8x with PBV (on cost basis) of 4.4x and 3.0x, respectively.
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