Incorporated as a public limited company is 1934, Atlas Insurance Limited is listed on Karachi and Lahore stock exchanges. The company was taken over by the Atlas Group in 1980 and has reinsurance arrangements with leading re-insurers of the world including Swiss Re from Switzerland, Hannover Re from Germany, Tokiio Fire and Nichido Marine and Sompo from Japan.
2013-FINANCIAL PERFORMANCE On the basis of net premiums, marine, aviation and transport dominates the firm's insurance product portfolio, contributing nearly 42 percent. Motor segment follows the lead by framing 33 percent to the firm's net premium revenue as of December 2013. However, fire and property damage and miscellaneous segments form a relatively smaller proportion of 13 percent and 12 percent, respectively as of December 2013.
In 2013, growth in net premium revenue remained on the higher side, rising by 26 percent over last year. Impressively, this is the highest growth in premiums achieved by the company over the last four years. However, net claims, witnessed a rise of 23 percent, after dwindling for the last four years.
With mushrooming net premiums, the ratio of net claims to net premiums witnessed a decline of 100bps during the year. Resultantly, net claims to net premiums ratio stood at 21 percent in 2013. Efficient risk management practices may be regarded as the reason behind this decline.
On the contrary, decline in net claims ratio was more than offset by soaring combined ratio that shot up to 62 percent in 2013 from 60 percent last year owing to upsurge in management expenses. Consequently, underwriting result of the firm rose by 16 percent year on year in 2013--the same as last year. However, a growth rate of 16 percent pales when compared to the growth rates of 92 percent and 27 percent experienced by the company in 2010 and 2011, respectively.
RECAPPING 1Q CY14: Profitability of the company continued its upward march in the quarter ended March 2014 with its profitability soaring up by 26 percent year on year. Strong bottom line growth came on the back of rising premiums and improving claims ratio. Investment income further sugar-coated the bottom line by posting an increase of 25 percent year on year and made a hefty contribution of nearly 48 percent to the firm's profitability during the aforementioned period.
INVESTMENT PORTFOLIO The investment portfolio of the company looks conservative. Mutual funds hold the lion's share of 54 percent with investment in listed equities following the lead (42 percent share). The remainder is in government securities, ie treasury bills and PIBs.
The company has parked 73 percent of the total investment in mutual funds in its own group company--Atlas Asset Management. It should be noted that the returns on stock funds of Atlas AMC are yielding below the industry average returns on a year-to-date basis.
The listed equity portfolio is diversified across oil and gas, electricity, cements, chemicals, banks, insurance amongst others. However, the energy sector has the major chunk of 41 percent (December 2013) in the investment portfolio of Atlas Insurance.
With listed equities contributing even less than 50 percent, the company still has room to jack up its equity exposure. Moreover, investment in PIBs remains on the lower side with a skimpy share of three percent in the entire investment portfolio of the company. With PIBs offering lucrative returns and interest rates gradually sliding downwards, boosting PIB investments at this point of time will enable the firm to lock-in yields at a higher rate. This will lend a hand in further jacking up the investment income, thus boosting up the profitability and shareholder's wealth in coming periods.
INDUSTRY OUTLOOK: By and large, everyone knows that the insurance penetration in Pakistan is meagre. Sadly, not many have focused on building the sector by identifying the key glitches and the development areas. However, the recent work done by Insurance Industry Reforms Committee (IIRC) deserves applause, in that area.
Apart from identifying the key issues prevailing in the industry and the suggestions to overcome those, the IIRC report highlighted that market development, insurance education and awareness and technological development are the key areas that can help the industry grow and stand at par with its competitors. These include use of alternative distribution channels namely ATM networks, the 1Link, MNet, Easy Paisa, UBL Omni, introduction of prepaid insurance cards and the like.
Most importantly, creating insurance awareness amongst masses is of the essence. The report noted: "According to World Bank estimates, only 14 percent of Pakistanis are using a financial product or service from a formal financial institution, which is the lowest penetration across the region." It also explained that lack of awareness and education remains the key hindrance in this regard.
That said creating awareness on a mass level can play a large part in unfurling the growth of this sector. Focusing on penetrating in rural areas needs to become the focal point of insurance companies as this segment holds great potential but remains untapped to a large extent. In this context, some of the companies have entered into micro-insurance to tap the low income group of the population. But, it is still in its nascent stages.
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Atlas Insurance - Financial Summary
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Rs (mn) 2008 2009 2010 2011 2012 2013
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Gross premium 861 911 1,025 1,120 1,500 1,400
Net premium 508 443 530 591 604 756
Net claims 231 192 176 153 133 163
Underwriting profit 158 104 200 254 295 343
Investment income (305) 118 103 134 181 246
Profit before tax (141) 237 327 400 468 588
Tax 59 48 84 99 101 132
Profit after tax (200) 189 243 301 366 456
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Source: Company accounts
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