Despite net premiums growth of 15 percent, underwriting profits of non-life insurance sector posted a decline of 39 percent, to Rs 825 million, in the first half of 2008. "The net premium of the sector grew to Rs 10.0 billion during this period against Rs 8.7 billion in the same period of 2007.
This was mainly due to 24 percent, 29 percent and 27 percent rise in net claims, net commission, and underwriting expenses, respectively", Umer Ayaz, an analyst at JS Global Capital, said. He said that in line with other financial sector companies, non-life insurance sector performance was not good during January-Jun of 2008. According to analysis, the underwriting business remained under pressure as its profits fell by 39 percent.
However, thanks to the one-time capital gain by Adamjee Insurance, the profitability of the listed non-life insurance sector soared by 33 percent against the same period in 2007. Excluding that one-time gain, the net earnings actually eroded by 49 percent. This analysis is based on 17 listed non-life insurance companies which represent more than 97 percent of the total market cap of the sector, he added.
A considerable, 400 bps, rise in claims ratio to 65 percent in the first half of 2008 was mainly the outcome of law and order issues in first quarter of 2008 when it reached 72 percent (based on sample). However, the ratio in the second quarter of 2008 reverted to normal levels as it dropped to around 58 percent in the second quarter of 2008.
Despite dismal stock market performance this year, the sector managed to post a dazzling 47 percent growth in investment income, to reach Rs 4.1 billion. However, a critical analysis showed that the growth was mainly due to a massive one-time gain, worth Rs 2.7 billion, recorded by Adamjee Insurance (AICL) after selling its stake in MCB to Malaysian MayBank in the second quarter of 2008. Excluding this, the investment income actually dipped by 49 percent, to Rs 1.4 billion.