Contents

Insurance Sector- Overview

Laraib Mohib

Presentedby:
AKDIML

AKD Investment Management Ltd.

Partner with AKD Profit from the Experience
1
Introduction to Insurance Sector

Insurance sector is divided in the following form in Pakistan.

Insurance
Sector

Life Non-Life
Takaful
Insurance Insurance

2
 Regulatory Structure of Sector

• The insurance sector is governed by the Insurance Ordinance 2000 and regulated by SECP.

• The insurance association of Pakistan is the representative body.

• Minimum Capital Requirement: PKR 400 mn by Dec 2016 and PKR 500 mn by Dec 2017

• Tax Structure: In the latest Federal Budget 2016-2017:

• All sources of income including dividend and capital gain will be taxed at 31% flat rate

• Imposition of WHT of 4% on premium of non-life insurance on non-tax filers and WHT of 1% on life insurance if the
premium amount exceeds Rs0.2mn for non-tax filers. This could slightly affect growth in insurance premium.

• At present, tax credit is available on the payment of life insurance premium up to Rs1.5mn. A new tax credit @ 5% of tax
payable or Rs100,000 whichever is less is proposed to be allowed on payment of premium of health insurance. Govt. has
also announced health insurance scheme which targets to distribute insurance policy to the tune of Rs9bn by FY18.

• At present, Commission paid to life insurance agents is taxed at the rate of 12% for filers. The rate of tax is being reduced to
8% for tax filers on commission received up to Rs500,000.

3
Global Insurance Sector Overview

Country Present Situation

It has the most potential in terms of insurance penetration, population

growth, economic advancements, widening middle class, improvements in
Asia
access to technology, rising real estate values and better regulatory
framework.
Slow economic growth, low interest rates, lagging population growth rate
Europe
and income levels
Recovery in economic conditions, rising competition levels, tough
USA
regulation framework, soft pricing

Young tech savy population going for digital options, rising affluence levels,
Latin America more insurance needed against natural calamities, more construction
underway, changes in regulatory structure

The Global insurance outlook include:

Movement towards digital distribution channels and improving access for consumers through technology; and
introducing new solutions around new technology
Expanding middle class in many places and economic recovery in USA
Improvements in regulatory structure to strengthen sector to improve consumer protection and increase
penetration in the sector
Improving living standards and health facilities as well as life expectancy levels

Source: Federal Ombudsman Of Insurance Pakistan, Report by Sidat Hyder 4

Global Market Growth Story

Non- life insurance premium growth was 1.7% from 2% in 2015, in both the emerging and advanced
economies. This is because of slowdown in Western Europe markets and in emerging markets, Latin
America and CEE countries exhibited slowdown. On the life side, the global premiums were up by 3.3% in
2015 approximately as compared to 4.7% in 2014.

The global economy is expected to slightly improve in 2016. However, factors including global commodity
prices, rate hike by USA and growth pace of China will continue to impact the economies.

Based on the improving global outlook, the non-life premiums are expected to grow by 3% in 2016, and
3.2% in 2017 from 2.5% in 2015. The growth is expected to come from emerging economies mostly.

In the life segment, the challenges will remain in the form of tough regulatory environment, volatility in
financial markets and low interest rates. In advanced markets, premium income is likely to grow by 2.5%
in 2016 and 2017. More customer focused approach and new technologies will lead to a 10.7% growth in
premiums of life sector.

Source: EY Global Industry Review; Swissre.com 5

Growth Statistics of Pakistan Insurance Sector

Life Insurance CAGR over 5 years:

Net Premium 48%
Net Investment 78%
Total Net Income 55%
Net Claims 62%
Profit/Loss Before Tax 30%

Profit/Loss After Tax 31%

Non- Life Insurance CAGR over 5 years:

Net premium revenue 5%

Net claims 1%
Net Commission 3%
Underwriting Balance 15%
Investment Income 24%
Other Income 46%
Profit After Tax 34%
Investment 10%

Source: Company Financials 6

 Non-Life Insurance Segment
There are 30 companies operating in the non-life insurance segment currently.

Main Segments Main Drivers

Suitable
Motor Economic
Regulatory
growth
Non – Life Insurance

framework
Fire & Property Awareness in
Infrastructure
people and
development
Marine, Aviation & Affluence
Transport
Health
Services and
Accident & Health Standards

7
Snapshot of the Main Company Performances

Name of
EPS* BVS P/E Ratio** P/B
Companies
Askari General Insurance 4.92 24.8 5.996 1.19
Adamjee Insurance 10.8 49.9 6.101 1.32
Atlas Insurance Limited 8.21 26.6 9.726 3.00
Century Ins 3.64 36.1 8.239 0.83
Cres.Star Ins 0.09 7.8 108.21 1.29
EFU General 11.49 83.1 13.034 1.80
Habib Ins. 1.36 8.4 14.176 2.29
IGI Insurance 8.96 102.7 31.362 2.74
Pak Reinsurance 5.013 24.4 8.076 1.66
PICIC Ins.Ltd.XR -0.56 1.7 -10.518 3.49
Premier Ins. -13.52 27.5 -1.590 0.78
Pak Gen.Insurance 0.853 15.9 12.246 0.66
Shaheen Insurance 0.56 8.6 15.000 0.98
United Insurance 3.76 15.6 6.144 1.48
Universal Insurance 0.253 14.2 73.026 1.30
Reliance Insurance 1.520 16.1 7.730 0.73

*EPS as of 30th Sept 2016 Average P/E 12.76

** Prices as of 14th Dec 2016
Average P/B 1.52
Source: Company Financials 8
Snapshot of the Main Company Performances

Name of Net Premium Net Investment

Claim Ratio Investments
Companies Revenue Claims Income/(Loss)
Adamjee Insurance 4,106,445.00 2,321,036.00 2,818,883.00 57% 20,911,909.00
Alfalah Ins. Co 646,046.00 361,117.00 64,339.00 56% 1,207,950.00
Asia Insurance 309,968.00 50,869.00 34,552.00 16% 380,274.00
Askari Gen. Insc. 938,353.00 459,755.00 96,190.00 49% 1,726,006.00
Atlas Insurance 757,623.00 177,486.00 339,891.00 23% 2,513,427.00
Century Insurance 522,167.00 318,841.00 139,879.00 61% 1,745,408.00
Crescent Star 157,018.00 37,222.00 4,652.00 24% 183,144.00
EFU Gen. Ins. Ltd. 5,647,654.00 2,146,717.00 1,433,785.00 38% 21,692,690.00
Habib Insurance 398,670.00 195,834.00 141,940.00 49% 926,093.00
IGI Insurance 1,026,687.00 547,332.00 1,236,523.00 53% 15,834,210.00
Jubilee General Insurance 3,109,612.00 1,591,022.00 941,662.00 51% 11,081,164.00
Pakistan Gen. Ins. 190,104.00 79,320.00 14,672.00 42% 332,173.00
PICIC Insurance 69,863.00 22,581.00 930.00 32% 36,795.00
Premier Ins. 448,285.00 519,609.00 113,901.00 116% 1,223,547.00
Reliance Insurance 260,881.00 75,951.00 54,492.00 29% 801,204.00
Security Gen. Insc. 322,279.00 51,383.00 758,684.00 16% 8,726,349.00
Shaheen Ins. 197,541.00 72,317.00 12,665.00 37% 468,672.00
TPL Direct Ins. 898,929.00 389,294.00 36,719.00 43% 860,198.00
United Ins. 2,004,273.00 743,262.00 108,554.00 37% 1,786,565.00

Source: Company Financials 9

Life Insurance Sector

The life insurance sector comprises of 6 companies currently.

Total Net Investment Balance of Net Claims/Net

Name Total Claims EPS P/E
Premium Income Statutory Fund Premium

Adamjee Life
7,214,020.0 2,172,936.0 1,195,534.0 19,187,309.0 0.04 30.12 -

East West Life

13,228.0 34,265.0 13,079.0 198,338.0 0.06 258.83 225

EFU Life
16,231,274.0 14,204,401.0 9,184,050.0 89,711,763.0 10.93 87.51 14.3

IGI Life
5,429,644.0 2,248,534.0 2,008,566.0 16,527,955.0 0.78 41.00 76.8

Jubilee Life
24,800,579.0 6,791,406.0 8,309,509.0 80,330,016.0 17.76 27.38 23.0

State Life -
45,743,004.0 24,457,622.0 45,572,258.0 577,755,817.0 28.53 53.47

Source: Company Financials 10

Takaful Business

Islamic finance has grown at a fast pace in the world. Takaful products are now sold in around 30 countries with more than
200 operatives.

Takaful Business

By 2014, the global gross Takaful contribution reached around US $14 billion and the growth rate has remained in double
digits since 2012. In many ASEAN countries, the strong economic conditions and demographic features have led to a CAGR
of 22% in the period 2012-2014.

Despite this, the global share of Takaful in total insurance is around 1-2% and there is strong potential of growth in the
Muslim countries.

In Pakistan, there are window operations of Takaful being run by insurance companies and separate Takaful companies
include:

Pakistan Takaful Company Limited

Pak-Qatar General and Family Takaful Company Limited
Pak-Kuwait Takaful Company Limited
Dawood Family Takaful

The Takaful outlook is promising for the sector. The corporate and individual preference for Shariah Compliant products will
lead to more growth in future. Many companies like AICL, EFUG, JGICL are already operating their Window Takaful
operations. SECP also introduced Takaful Rules in 2012 to facilitate the set up of the Takaful operations.

Source: Federal Ombudsman Of Insurance Pakistan, Report by Sidat Hyder 11

Re-insurance Business

There is only one re-insurance company at present; Pakistan Re-insurance Company Limited

PRCL is a public sector company under the administrative control of the Ministry of Commerce.

PRCL’s prime objective is the development of insurance and reinsurance business in Pakistan. The company provides
insurance solutions to departments including Aviation, Marine Cargo, Marine Hull, Engineering, Fire and Accident.

The company is a national reinsurer playing its role in the economic development of Pakistan. It provides reinsurance
protection to the local insurance industry in view of treaty and facultative business as well as managing insurance
schemes assigned by the Federal Government of Pakistan

Its insurance market holds 18% of the share whereas 45% of the share is covered by the reinsurance protection in
Pakistan.

P/B 1.70
P/E 8.50
Claim Ratio 51%
Investments 757 million

12
Future Outlook for Sector

The future outlook of Insurance sector is based on the macro-economic stability in the years to come.

The Government has set GDP growth target to 5.7% in FY17 and to take it to 7% in FY17.

Government expects me to keep inflation in single digit for the next three years, indicating that low interest rate environment
might prevail in the near term.

The investment in GDP ratio has been set to 29% from 19% for the next fiscal year.

Performance of the insurance companies also depends on the stock market and Government securities due to their large
investment income share. FYD return of PSX 100 stands at 24.23% with a target of 50,000-55,00 points for FY17. Furthermore,
interest rates are believed to have bottomed out , with increase in policy rate expected from CY17 monetary policy.

SECP has also issued a draft Insurance Bill 2016 to recommend improvements in the Takaful Industry as well as encourage
micro-insurance companies to enter the sector. Furthermore, SECP intends to increase the number of companies in Re-
insurance sector too.

Other triggers include:

Rapid Infrastructure development

Ongoing and planned power projects
Improvement in distribution channels
More inclination and awareness about Islamic finance

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