A long-running state monopoly in the life insurance space did not leave much incentive for private players to challenge the behemoth State Life after the government lifted the ban on private sector's participation in early 90s. To date, there are only a handful of private firms in the domain - five as per Insurance Association of Pakistan - IAP (September-2015).
Jubilee Life (PSX: JLICL), incorporated in 1995, is one of the top names in life insurance business. The firm, along with EFU Life, has been battling for top spot among the private sector firms, and it's their competition that has resulted in a meaningful threat to State Life's domination. In recent years, JLICL has been the fastest growing firm in its industry.
Insurance penetration rates have been dismal in Pakistan - near half a percent - as compared to regional countries. However, it is set to become more popular with the development of new distribution channels and products, and the commencement of window Takaful operations by mainstream companies.
Performance in recent years
Insurance underwriting has seen splendid growth at Jubilee Life Insurance. In the past five years, the firm's net premium revenue has grown at an average pace of 40 percent, compared to a 25-30 percent growth rate of the competitors. Jubilee's premiums have grown from Rs5.5 billion in CY10 to Rs29.1 billion in the recently concluded CY15.
Individual life products have been the revenue engine for Jubilee; in CY15, it accounted for 89 percent of the premiums (Rs25.8 billion). Accident and health insurance, the second biggest segment for the firm, has shown promise lately. Although a fraction that of individual, the unit's premiums rose from Rs1.6 billion in CY14 to Rs2.2 billion in CY15.
![](https://i.brecorder.com/images/2016/03/graph 219.jpg"></P><P>Monitoring policyholders' claims is very important for an insurer. In the past half decade, claims ratio (claims as a percentage of net premiums) has been downward volatile. From 30.5 percent in 2010, the ratio dropped to 24.1 percent in 2015. It dropped to as low as 19.6 percent in CY12.</P><P>Investment income is another major part of an insurer's books that remains volatile. Interest rates and stock market performance are of course key determinants. In 2015, the firm's investment income took one percent dip to Rs6 billion. In the past five years, JLICL's income from investments has grown at a slower pace than that of premiums, at 36 percent.</P><P>With soaring revenue and yet volatile upward moving investment income and claims, Jubilee's profitability has impressed investors lately. From Rs147 million in 2010, after-tax profits grew to Rs1.6 billion in 2015 - a CAGR of nearly 62 percent. Profitability in CY15 was subdued; the bottom line only expanded 19 percent year-on-year due to sluggish income from investments. Profit, as a ratio of net premiums, has increased from 2.7 percent in CY10 to 5.6 percent in CY15.</P><P>Apart from numbers, CY15 was a milestone year for Jubilee and its peers.</P><P>The SECP gave a go-ahead to conventional players to commence window Takaful operations. While this may not be of any significant effect instantly, it certainly will be in a few years' time. Shariah-compliant products can help ease the sector's long-running problem of poor penetration rates.</P><P><B>Stock performance and outlook</B></P><P>JLICL shares have finished in the green in each of the past five years. The stock has outperformed the market for three years running, with returns of 83 percent in CY13, 214 percent in CY14 and 14 percent in CY15. JLICL's share price has soared from under-Rs100 in mid-2013 to around Rs515 apiece today. By the nature of its business, life insurance is much more reliant on the success and penetration of its distribution channels, as compared to non-life business which depends heavily on economic growth. A rising shift from conventional agent-based selling structure to channels like bancassurance has boosted growth potential for life insurance firms, which is set to continue.<br />Besides, the biggest driver in the coming years is poised to be a move towards Shariah-compliant products which could push insurance penetration rates upwards. </P><P>Takaful has massive potential for life insurers. EFU Life believes Takaful operations to account for 15-20 percent of premiums by 2020.</P><P>National Health program can be another driver for the industry. State Life won the first contract from the government worth Rs45 billion. However, private sector players are expected to get some share of this pie in 2016. Other potential drivers for life business include the rise in disposable income with plunging crude prices and Pakistan's increasing population.<br /></P><CENTER><A href="javascript:void(0)"><B><I>Copyright Business Recorder, 2016</I></B></A></CENTER></p>
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