The insurance industry of Pakistan forms a meagre part of the GDP as compared to other nations of the world. With penetration of merely 0.5%, the industry is still in its nascent stage in consequent of lower demand. The concept of insurance in Pakistan is not acceptable on account of many reasons such as:
-- Poor positioning and marketing of insurance policies.
-- Distribution related issues, inability of sales representatives to contact people who might be interested in buying insurance.
-- Cultural and religious factor: The widespread perception that insurance is non-Islamic and against Shariah.
-- Demand for insurance depends on real disposable income of the prospective policyholder, the individual's preference about the need for financial security, economic environment, interest rates, inflation and insurance premium rates; factors which are all missing in the Pakistani scenario.
Pakistan's insurance sector is reaping the benefits of a growing economy coupled with the insurance sector reforms, soaring trade activities, improving per capita income and competition among insurance sector companies, which are driving the current growth in the insurance sector. Moreover, higher interest rates and tax exemption on capital gains also supported the investment income of the companies, which provided further impetus to the insurance bottom-line. The gross premiums and net premiums of the insurance industry have shown an increasing trend, thanks to the better marketing environment. Also, the percentage of gross premium to GDP also showed an increasing trend over the period under assessment. This trend is indicative of growth of insurance penetration in the economy.
IGI Insurance Limited (formerly known as International General Insurance Company of Pakistan Limited) was incorporated in 1953. IGI, a part of the Packages Group, was listed on the Karachi and Lahore stock exchanges in December 1987. It mainly provides non-life insurance facilities including travel insurance, fire insurance, marine insurance, auto insurance, health insurance, and other miscellaneous insurances such as protection against as business interruption, contractors all risk, risk of computer data loss and machinery erection all risks. To date, IGI has an asset base of over 4 billion rupees and has offices in Karachi, Lahore, Islamabad, Sialkot, Multan, Gujranwala and Faisalabad, serving a large number of prestigious local and multinational clients throughout Pakistan.
The Company has been awarded "AA" (Double A) Insurer Financial Strength (IFS) Rating with a Positive Outlook by Pakistan Credit Rating Agency (Private) Limited (PACRA), which denotes a strong capacity to meet policyholders' and contract obligations. IGI Insurance Limited has re-insurance agreements with such as Swiss Re and Sumitomo Re. In line with the company's growth strategy, it has acquired the Pakistan operations of Royal and SunAlliance Plc, UK IGI Insurance Limited is now a global network partner of Royal and SunAlliance Plc UK.
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FINANCIAL HIGHLIGHTS
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Gross Written Premiums 11% (up)
New Written Premiums 24% (up)
Underwriting Result 31% (up)
Underwriting Profitability Ratio 22%
Earnings Per Share Rs 4.41
Dividend 35%
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RECENT RESULTS FY09
FY09 was very promising for IGI Insurance as its gross written premium increased by 11% and stood at Rs 1,152 million in 2009. The increase in gross written premium contributed to an increase of 24% in net written premium, which stood at Rs 665 million at the end of 2009. The underwriting profit increased by 31% and stood at 253 million by the end of 2009. Improvement in gross written premium, new written premium and underwriting profit was attributed to improved operational performance, increase in retainable motor portfolio and high retentions in marine business.
The company maintained its fourth position among private sector in terms of gross written premiums and the market share of the company increased from 3.05% in 2008 to more than 3.50% in 2009. Total claims incurred increased by 3%. Both general and administrative expenses and financial charges decreased; former by 16% and the latter by 40%. Enhanced underwriting profitability and reduced administrative expenses improved the combined operating ratio from 90% in 2008 to 86% in 2009.
IGI Insurance posted a loss of Rs 415mn in its investment portfolio and books Rs 721 million as its share of profit from associates where it has significant influence. Consequently, the company posted Rs 365 million as its profit before tax in 2009 against a loss before tax of Rs 404 million in 2008. In 2009, the profit after tax was Rs 264 million compared to Rs 377 loss after tax in 2008.
The monthly high and low prices and volume of shares traded on the KSE during the FY 2009 are as under:
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Share Price on KSE (Rs)
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Month Highest Lowest Volume of
Shares Traded
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January 109.51 53.55 132600
February 66.15 53.15 182700
March 63.88 48.00 336200
April 114.85 65.00 507900
May 101.99 84.5 145300
June 97.00 83.00 125400
July 92.70 81.00 330596
August 88.50 75.10 213922
September 92.96 77.56 324251
October 120.75 89.5 838798
November 113.5 101.00 256236
December 104.5 87.30 428506
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SEGMENTS AT A GLANCE
Fire: Gross written premiums grew by 10% from Rs 346m in 2008 to Rs 379m in 2009 and net premium earned increased by 9% from Rs 68m to Rs 74m. As losses decreased by a significant 98% from Rs 27m in 2008 to Rs 1m in 2009, underwriting profit increased by 120% from Rs 38m in 2008 to Rs 84m in 2009.
MARINE, AVIATION AND TRANSPORT
Despite a general slowdown in economy, marine business declined merely by 3% from Rs 234 million in 2008 to Rs 226 million in 2009. Underwriting profit increased by 53% in this segment from Rs 65 million in 2008 to Rs 99 million in 2009.
MOTOR
Following the recovery trend in auto sales volume, gross written premium grew by 29% from Rs 300 million in 2008 to Rs 388 million in 2009. Loss experience generally remained within expectations. However the slight increase in loss ratio declined underwriting profitability to Rs 54 million in 2009 from Rs 61 million in 2008.
OTHERS (MISCELLANEOUS)
For miscellaneous lines, which include engineering, contract, travel, health and cash business, gross premium grew by 2% from Rs 156 million in 2008 to Rs 159 million in 2009. Health insurance identified as the major growth area in current times, IGI Insurance is focusing on it in a prudent manner. As the loss experiences in health are generally higher, the underwriting profitability declined by 45%, from Rs 29 million in 2008 to Rs 16 million in 2009.
As per the industry trend, motor insurance coverage forms a major earning source of IGI, closely followed by fire. The major reason behind the high amount of premiums originating from the motor sector was the affordable car financing facilities. Moreover, mobilization of construction sector spurred demand for fire insurance.
Underwriting profit to net premium ratio increased from 35.6% to 41.18%. Furthermore, underwriting profit to gross premium ratio increased from 18.66% to 21.97%. Premium has shown a momentous growth and is an indicative of the rising demand for insurance and thus greater awareness amongst users of insurance policies. However, insurance sector needs to be pushed further in order for it to be at par with other nations of the world.
Although the expenses for IGI insurance have been increasing, they are an indicative of greater business for the company. The commissions and underwriting expenses; claim rate and operating expenses as well as reinsurance expense have all shown an increase owing to greater demand for insurance products in general. The combined ratio (as measured by expense ratio + loss ratio) decreased in 2009. The reinsurance expense to net premiums ratio fell from 90.82% to 87.41%.
The debt to assets ratio fell from 17.83% in 2008 to 11.36% in 2009. The debt to equity ratio also fell from 0.22 times in 2008 to 0.13 times in 2009.
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Investment Portfolio (2009) % Rs
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Equity Instruments of associated companies 43.18124 4851740
Govt Securities 0.54825 61600
TFCs 0.540542 60734
Equity Investment 55.72996 6261684
100 11235758
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Investment income has declined persistently for two successive years ie FY08 and FY09. Investment income dropped to Rs 157,476 in FY08 and they further fell to Rs 414,649 in FY09. This can be primarily attributed to higher risk perception, coupled with the prevalent liquidity crunch, uncertainty on the political canvas, military operations against insurgency, and its aftermath.
For FY09, the investment income to net premiums ratio fell to -67.47% and the investment income to investment assets ratio fell to -3.69%.
The earnings per share (EPS) of IGI Insurance has witnessed a varying trend over the years. It peaked in 2007 when it was Rs 91.75. In 2008, it fell to Rs (-6.3) and in 2009, it recovered and stood at Rs 4.41 by the year-end.
By the end of 2009, the market value per share (MVPS) had fallen to Rs 88 and the Price-Earning (PE) Ratio increased to Rs 19.95.
Capital adequacy has been on the higher side for IGI Insurance. This was mainly due to greater reliance on equity financing. The large paid up capital has boosted the equity/total assets ratio for the company. By the end of FY09, the equity to total assets ratio had increased from 0.82 times to 0.89 times.
Furthermore, the paid up capital to total equity ratio declined from 0.06 times to 0.05 times in 2009.
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IGI-KEY FINANCIAL DATA
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Earnings FY'04 FY'05 FY'06 FY'07 FY'08 FY'09
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Rupees in Thousand
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Gross Premium 423160 632224 900,098 1,039,605 1,035,218 1,151,797
Net Premium Revenue 208,696 316,153 426,472 586,073 542,515 614,586
Total Claims Incurred 86,438 142,906 186,982 347,805 423,323 437,930
Underwriting Expenses 69,350 94,187 104,915 171,077 240,931 257,052
Underwriting Result 106,878 190,065 226,929 160,803 193,166 253,103
Investment Income 231,309 258,822 7,315,629 3,021,533 -157,476 -414,649
Profit Before Tax 250,294 326,757 7,357,109 2,984,217 -404,103 364,766
Profit After Tax 222,294 289,743 7,342,370 2,930,279 -377,042 263,966
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Balance Sheet FY'04 FY'05 FY'06 FY'07 FY'08 FY'09
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Rupees in Thousand
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Paid up capital 122,808 153,510 199,563 319,301 598,689 598,689
Equity 894,156 1,228,755 8,509,721 11,280,350 10,846,519 10,960,813
Investments 854,682 1,873,786 9,246,735 12,404,727 11,709,948 11,235,758
Cash & Bank balances 189,869 260,088 139,557 205,911 258,260 6,809
Total Assets 1,526,007 2,957,949 10,399,049 14,104,104 13,200,639 12,366,066
Total Liabilities 631,851 1,729,194 1,889,328 2,823,754 2,354,120 1,405,253
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Operating Performance (%) FY'04 FY'05 FY'06 FY'07 FY'08 FY'09
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Underwriting Profit / Net Premium 51.21 60.12 53.21 27.44 35.61 41.18
Underwriting Profit / Gross Premium 25.26 30.06 25.21 15.47 18.66 21.97
Loss Ratio 41.42 45.20 43.84 59.34 78.03 71.26
Expense Ratio 33.23 29.79 24.60 29.19 44.41 41.83
Combined ratio 74.65 74.99 68.44 88.54 122.44 113.08
Return on Assets 14.57 9.80 70.61 20.78 -2.86 2.13
Reinsurance Expense/Net Premiums 102.76 99.97 111.06 77.38 90.82 87.41
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DEBT MANAGEMENT FY'04 FY'05 FY'06 FY'07 FY'08 FY'09
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Debt/Assets Ratio 41.41 58.46 18.17 20.02 17.83 11.36
Debt/Equity 0.71 1.41 0.22 0.25 0.22 0.13
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Capital Adequacy FY'04 FY'05 FY'06 FY'07 FY'08 FY'09
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Paid-up Capital / Total Equity 0.14 0.12 0.02 0.03 0.06 0.05
Equity/Total Assets 0.59 0.42 0.82 0.80 0.82 0.89
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Profitability Ratios FY'04 FY'05 FY'06 FY'07 FY'08 FY'09
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Investment income/Net premiums 110.84 81.87 1715.38 515.56 -29.03 -67.47
Investment income/Investment assets 27.06 13.81 79.12 24.36 -1.34 -3.69
Profit After tax/Net Premium 106.52 91.65 1721.65 499.99 -69.50 42.95
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Market Value Ratios FY'04 FY'05 FY'06 FY'07 FY'08 FY'09
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Earnings Per Share 15.15 14.52 229.95 91.77 -6.30 4.41
Price to earnings ratio 16.50 18.66 1.74 4.35 -18.25 19.95
Dividends per share 4.50 4.00 4.00 4.99 0.80 2.49
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