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TRANSCRIPT
Pakistan
General Insurance Sector
October 2012
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Snapshot
PACRA’s relationship with insurance
What is General (Non-Life) Insurance
Global Round of General Insurance Sector
Pakistan’s General Insurance Sector – a brief
Sector’s Demand and Supply Dynamics
Key Figures and Trends – a Preface to Business Risk
Building on the Past Trends in Industry’s Performance – 1H12
and last four years
An Analysis some positive attributes of industry in Pakistan
Risks analysis
PACRA and Insurance | relationship
Insurer Financial Strength Rating – one of the largest
sector portfolio rated by PACRA – 19 IFS ratings
PACRA issued First IFS rating in 1997 to IGI Insurance
To date PACRA has executed 117 rating decisions for
the insurance sector
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
It is a method of shifting the responsibility for losses
It is a system of protection against loss
Insurance companies manages through risk transfer/sharing with
re-insurance / other insurance companies
Reinsurance; insurer gets insurance
– Treaty
– Facultative
Co-insurance – risk is spread among the insured (in some jurisdiction), and
a panel of insurance companies
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
What is Insurance
GPW (Gross Premium Written)
The amount of premium policyholders are required to pay for insurance policies written during the accounting
period; regardless of what portions have been earned.
NPR (Net Premium Revenue)
The amount of premiums that a company has earned, net of reinsurance premium expense.
Loss Ratio
Loss ratio measures Net Claims as %age NPR. In general, a lower claims ratio produces higher
returns.
Expense Ratio
Expense Ratio measures the percentage of premiums an insurer pays out in expenses (commission, management
and admin). The lower the ratio the better, since a higher ratio means expenses are eroding more premium
revenues.
Combined Ratio (Loss Ratio + Expense Ratio)
Combined Ratio measures the underwriting profitability; ratio above 100% means the company’s underwriting
operations are in loss.
Investment Generation Ratio
This ratio measures Investment Income as %age NPR. The higher the ratio the better, since a higher ratio provides
strong cushion to the bottom-line.
Operating Ratio [Combined Ratio – Investment Generation Ratio +/- others]
This ratio measures bottom-line; ratio above 100% means the company is in loss
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Please Remember!
Global Round of
General Insurance Sector
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
M
A
R
K
E
T
S
H
A
R
E
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
A quick Round of Insurance all across the
continents 1
Top countries in term of global premium share 2011
CountryPremium
(USD mln)
Share of world
market
(%)
Penetration
(Premium as
%age
GDP)
Density
(Premium per
Capita in USD)
1 United States 667,107 33.9 4.5 2,130
2 Germany 131,292 6.7 3.6 1,578
3 Japan 130,741 6.6 2.2 1,031
4 United Kingdom 109,486 5.6 3.1 1,188
5 France 98,359 5.0 1.9 1,403
6 China 87,319 4.4 1.2 64
7 Netherland 79,722 4.1 9.5 4,777
8 Canada 69,045 3.5 4.0 2,010
73 Pakistan 636 0.03 0.3 4
Top 8 1,373,071 69.8 3.4
Rest of the world 595,108 30.2 2.1
World’s Total 1,968,179 100 2.8 283
1
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Top countries in term of Asia’s premium share 2011
Ranking
(Asia’s
Market
share)
CountryPremium
(USD mln)
Share of
world
market
(%)
PenetrationDensity
(Premium per
Capita in USD)Rank
(Asia)
(Premium/
GDP in %)
1 Japan 130,741 6.6 4 2.2 1,031
2 China 87,319 4.4 11 1.1 64
3 South Korea 51,223 2.6 1 4.6 1,045
4 Taiwan 14,283 0.7 2 3.1 614
5 India 12,187 0.6 13 0.7 10
6 Singapore 8,188 0.4 9 1.5 810
7 Iran 7,555 0.4 8 1.7 101
20 Pakistan 636 0.03 18 0.3 4
Top 7 311,496 15.8 na 1.7 na
Rest of the Asia 44,684 2.3 na 1.1 na
Asia’s Total 356,180 18.1 na 1.6 85
na: not applicable
1
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Sector’s Performance in selected countriesChange (%) 2010-2009
Improved
improved
3
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
*Total commission as %age premium
**total operating cost as %age premium
***
India | Pakistan’s neighbor
India’s non-life insurance industry is developing
The market has opened up since deregulation in
2001, and 22 firms now sell non-life coverage,
though the top four are public-sector firms
Insurance penetration is high for compulsory
third-party motor insurance (Motor TPI).
Penetration is low in other segments
However, privately held insurers are increasingly
looking to penetrate health insurance and other
insurance
Premium USD 12bln – World’s
19th largest insurer
Public : 58% | Pvt : 42%
Public Co. Market share in
segments: Motor: 69%,
Health: 23%, marine: 12%,
fire: 10%
Motor Insurance 83% of
country’s premium
Mandatory Motor TPI –17%
market share
Key Facts and Figures
FY12 (Mar-12) 2
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
General Insurance Sector
In Pakistan
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
G. Insurance Industry in Pakistan – a brief
31 active general insurance companies including a state owned and three Takaful
Top three insurers occupy 65% market share in the private sector (non-takaful)
Total risk insured by the private sector general insurance (excl. takaful) is more than approx.
PKR 15trillion, generating PKR 42bln premium
Predominantly Commercial line insurance based on traditional model
Evolving and tapping various avenues including personal line insurance
Takaful an addition | Small in size | Takaful window allowed to non-Takaful companies but
stay has been obtained by takaful companies against SECP’s orders
Large/ high risks managed through facultative as well as coinsurance
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Sector Active
companies
Market Share
(GPW- 2010)
Public (National Insurance Corporation) 1 14%
Private Sector – General Insurance (Non
Takaful)
27 85%
Private Sector – General Takaful 3 1%
4
4
4
Identifying Customers and Suppliers
Suppliers
Customers
General Insurance
Sector
• SECP issues license to issue insurance policy
• Banks require their borrowers to get insurance for the underlying assets
(leased vehicles, pledged stocks, mortgaged fixed assets, etc) held as
collateral/ security of borrowings.
• Intermediary; Agents
Banks, Large Corporate, MNCs, and Individuals
Highly Competitive
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Gross premium correlation with Economic Growth
2004 2005 2006 2007 2008 2009 2010 2011
GPW (R.H.S) 21.38 27.73 33.62 38.73 41.68 43.59 47.73 54.94
Nominal GPW Growth 11.9% 29.7% 21.2% 15.2% 7.6% 4.6% 9.5% 15.1%
Real GPW Growth 4.2% 18.9% 12.3% 7.1% -10.5% -7.9% -3.9% 2.9%
Real GDP growth (%) 7.5% 9.0% 5.8% 6.8% 3.7% 1.7% 3.1% 3.0%
(30)
(20)
(10)
-
10
20
30
40
50
60
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
GP
W P
KR
bln
correlation cofficient (7yrs): 0.05%
1 and 6
5
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Segments’ Composition
31%
34%37%
40%
32%
28% 26%23%
23%
26%
24%22%
14%12%
13%15%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2007 2008 2009 2010 2011 2012
Fire
Motor
Misc.
Marine
Segments’ Trend
7 8
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Segments’ Trend
9
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Industry’s Performance10
CY06 CY07 CY08 CY09 CY10 CY11 *1H12
GPW (R.H.S) 28,198 32,812 33,958 34,723 38,035 42,314 44,228
Pre-Tax profits (R.H.S) 14,458 33,763 (4,940) 20,616 3,354 3,401 5,977
Loss Ratio 62% 71% 63% 61% 63% 58% 57%
Combined Ratio 97% 106% 103% 104% 108% 103% 102%
Operating Ratio 23% -68% 123% 79% 87% 85% 78%
-24,000
-16,000
-8,000
0
8,000
16,000
24,000
32,000
40,000
48,000
-75%
-50%
-25%
0%
25%
50%
75%
100%
125%
150%
PK
R m
ln
Stock Market Crash
Stock Market Boom
Political leader assasination led
riotsFloods
*annualized
Analysis of positive attributes
of General Insurance Sector
In Pakistan
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
General Insurance – positives
The industry’s bottomline absorbed huge losses in 2007 (riots), 2008 (investment loss/
impairment), and 2010 (flood) and stabilized equity base thereafter, though position has
been weakened as against 2006 level.
After taking hit in 2008 from capital market, the industry shifted their investment
portfolios to low risk and liquid avenues
Regulator has recently taken up stricter stance towards governance of the sector, which is
expected to bode well for the industry in the medium term.
Industry is now taking corrective measures while improving risk management framework
Traditionally General Insurance was supported by manual operating environment. In the
last ten years significant improvement has been made with advanced IT infrastructure and
real time insurance solution.
Management quality is being upgraded with fresh HR hiring possessing higher technical
stature – insurance specific professional qualifications; Existing HR is well experienced.
General Insurance Strength
Reinsurance
Industry’s Treaty Capacity - Exposure per Risk CY12
Segment Capacity (max-min)
PKR mln
Retention(max-min)
PKR mln
Fire 6,666-104 133-4.8
Marine 7,500-33 65-2.5
Engineering 1,640-25 40-5
CAT 12,000-70 40-20
Risk Sharing techniques available
Local and Foreign Facultative | Coinsurance
Treaty arrangements | foreign | strong financial strength | arrangements
in place with more than 40 reinsurance companies abroad
High risks mostly ceded to reinsurance companies in the international
market – low risk retention in Pakistan5
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Analysis Risks faced by the General
Insurance of Pakistan
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
2008 2009 2010 2011
Sector's Average Premium Rate
Average Premium rate*
*GPW as %age of Gross Sum Insured (PACRA's universe )
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Underwriting performance
The underwriting results of the industry on average are in loss since CY07; combine
ratio is consistently reported above 100% (CY06: 97%)
Growth in expenses (other than claims) have outpaced nominal growth in GPW, limited
economies of scale. The companies are investing to establish infrastructure for
improved risk management in the wake of high competition, the eventual translation of
the same is in the form of profits would take some time in the medium to long term
Intense competition between
industry players and low demand
has put pressure on premium
pricing in recent years, contributing
towards core operations in loss.
High losses in CY07resulted in declinedcommission ratedsubsequently
Reinsurer’s loss ratiohas remained at ahigh level sinceCY10, indicative offurther adjustment inreinsurers’ conditions
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Pakistan | Economic
Damage Costs in the past
from 1947- 2011 (Top 12 Natural Disasters)
YearDamage
(in US$ mln) Disaster
2012 estimated 2,631 Flood
2011 3,730 Flood
2010 9,500 Flood
2008 103 Flood
2007 1,620 Cyclone
2007 327 Flood
2005 5,200 Earthquake
2001 246 Flood
1999 247 Drought
1992 1,000 Flood
1976 505 Flood
1973 662 Flood
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Major risk emanates from Flood in
the recent past
Reinsurers’ support and favorable
treaty/ conditions become
particularly critical in the wake of
high catastrophic risk
Catastrophic Risk
12
13
Regulatory Risk
List of Insurance Companies with Winding
Order Sanctioned – non-compliance of various
provisions of the law
1. Gulf Insurance.
2. Delta Insurance Company Limited.
3. Sterling Insurance Company Limited.
4. Beema Pakistan Company Limited.
5. Business & Industrial Insurance
6. Progressive Insurance Company limited.
7. Pakistan Guarantee Insurance
8. Pak Northern Insurance Company Limited.
9. Platinum Insurance Company Limited.
10. North Star Insurance Company Limited.
List of Insurance Companies with Prohibition to
Underwrite New Insurance Business – 13 Dec-
2010
1. Hallmark Insurance Company Limited.
2. Dadabhoy Insurance Company Limited.
3. The Ittefaq General Insurance Company Limited.
4. National General Insurance Company.
5. Seafield Insurance Company Limited.
6. Agro General Insurance Company Limited.
7. Union Insurance Co. of Pakistan Limited.
8. Standard Insurance Co. Limited.
SECP’s Recent actions MCR non-compliant
Year Status
Crescent Star 2007 Decision pending
Cooperative 2008 Stay order
Asian Mutual
Insurance 2007 Stay order
Agro General 2008 Wound up
MCR non-compliant at end Dec-11
Equity Status
Shaheen 266 Shares issued in Jun-12
Capital
Insurance 267 No information
1414
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Regulatory Risk – Going Forward
End-Dec11
GPW Capital Equity
1 Excel Insurance 15 300 274
2 Asia 53 300 343
3 Alpha 155 304 348
4 Saudi Pak 218 325 183
5 Silver Star 311 305 441
6 Universal 464 300 208
7 TPL Direct 504 380 368
8 Shaheen 664 250 265
9 PICIC 695 350 243
MCR – Currently all General Insurance are required to maintain minimum capital (paid-up)
at PKR 300mln.
If the requirement is changed
Either as MCR based on Equity (paid-up capital plus reserves) instead of paid up capital ;
AND/ OR a further Raise in MCR requirements
Companies at risk having low business volumes and/or small equity base
10
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Inter Company Debt
CY08 CY09 CY10 CY11 1H12
Amounts Due to other Insurers/Reinsurers
2,402 2,918 4,367 4,489 3,159
Amounts Due from Other Insurers/Reinsurers
2,727 2,333 2,759 2,441 1,941
Net payable/ (receiveable) (325) 585 1,608 2,048 1,218
(1,000)
-
1,000
2,000
3,000
4,000
5,000
The industry practices
settlement on net basis;
Insurance related receivable/
payable from/to local
coinsurers and (or)
reinsurers0
which have traditionally
remained un-reconciled and
old balances have been
outstanding since long
The difference between the
two balances have been
showing an increasing trend
majorly due to build up of
payable towards smaller
players
Risks’ level
spot lightPACRA
and Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Risks1. Core underwriting consistently in loss, the
improvement of which is critical for the
industry, going forward
2. Risk that reinsurers’ terms and conditions
may be tightened
3. Small players exposed to risk of regulatory
non-compliance
4. Inter-company balances – circular in nature
– may result in credit impairment in the sector
Moderate
Low
High
level
PACRA and
Insurance
What is Insurance
Global General
Insurance
Pakistan’s Sector – A
brief
Demand and Supply Dynamics
Key Trends
Past Performance
Strengths and Risk
Moderate
Bibliography
1. Swiss Re Sigma 3/2012: World’s insurance in 2011 | Tables
2. IRDA | Gross premium underwritten by non-life insurers within India (segment wise) : Financial year 2011-12
(Provisional & Unaudited)
3. Capgemini | World Insurance Report 2012 | Figure 1.1
4. SECP Annual report – Statistics 8.2.4.4 for market share and Insurance Association of Pakistan for the Premium and
PACRA’s estimate for the Sum Insured
5. PACRA’s in-house database
6. State bank of Pakistan
7. State Bank of Pakistan | Banking Sector Credit Loans Archive
8. Pakistan Automotive Manufacturers Association (PAMA)
9. State Bank of Pakistan | Export Import BOP archive | Exports Receipts & Imports Payments and Balance of Trade
10. Insurance Association of Pakistan | Key Financial Data 2011
11. Pakistan Insurance Institute (PII) Conference | April 2012
12. Pakistan Insurance Institute (PII) Conference | April 2012 | Pakistan in the eye of Storm
13. Ministry of Finance | Pakistan: Flood Impact Assessment | Table 1
http://www.finance.gov.pk/survey/chapter_12/SplSection.pdf
14. Securities and Exchange Commission of Pakistan | Public Notices / Warnings |
http://www.secp.gov.pk/ID/id_publicnotices-warnings.asp
DISCLAIMERPACRA has used due care in preparation of this document. Our information has been obtained from sources
we consider to be reliable but its accuracy or completeness is not guaranteed. The information in this
document may be copied or otherwise reproduced, in whole or in part, provided the source is duly
acknowledged. The presentation should not be relied upon as professional advice.
Analysts
Amara S. Gondal
Jhangeer Hanif
Saira Rizwan
Abdul Hayee
Noman Umar
Contact Number: +92 42 3586 9504