Nine percent rise in non-life insurance sector profits

The net profit of the listed non-life insurance companies increased by 9 percent, to Rs 475 million, in the half-year period ended on June 30, 2010, as compared to Rs 434 million in the corresponding period of last year. Analysts said that despite a 27 percent decline in the underwriting results, the listed non-insurance sector posted a decent growth in the bottom line.
"This increase is primarily attributable to higher dividend income and lower provision for impairment during the first half of 2010 and low general and administration expenses", Bilal Qamar, analyst at JS Global Capital, said. The investment income increased by 23 percent and the general and administration expenses reduced by 2 percent in the first half of 2010 over the same period last year, he said.
"The analysis is based on a sample of 19 out of 21 listed non-life insurance companies, representing almost 100 percent of the total sector's market capitalisation", he said, adding that it includes Central Insurance, which witnessed an abnormal jump in its profitability due to a Rs 845 million provision for impairment in the value for 'Available for sale' investments booked in the first half of 2009. "However, when we exclude the company from our sample, the sector's profitability is down 76 percent on year-on-year basis in the first half of 2010," he said.
Higher claim and expense ratio led to a decrease in underwriting profits during the first half of 2010. Claim ratio increased to 60 percent from 58 percent in the first half in 2009, while the expense ratio creped up to 22 percent from 20 percent. Consequently, the sector's underwriting results declined by 27 percent on year-on-year basis to Rs 1 billion in the first half of 2010.
However, despite weaker equity market conditions, an up-tick in dividend income and lower provisions for impairment in value of 'Available for sale' investments caused investment income to rise to Rs 241 million from Rs 196 million in the first half of 2009, up 23 percent on year-on-year basis. This, along with a 2 percent decline in general and administrative expenses, heaved the bottom line into the green, Bilal said.