General Insurance Sector Updatepacra.com.pk/uploads/doc_report/G_Ins_Nov15.pdf · Haider Imran...

General Insurance Sector

Update

Nov 2015

GPW GrowthMarket |

Segmental MixPerformance Strengths Challenges

CY11 CY12 CY13 CY14 9M14 9M15

GPW 43,190 45,755 50,929 56,893 45,369 49,084

GPW Nominal Growth 12% 6% 11% 12% 12% 8%

GDP Nominal Growth 23% 10% 12% 12% 12% 9%

0%

5%

10%

15%

20%

25%

30%

-

10,000

20,000

30,000

40,000

50,000

60,000P

KR

mln

GPW GrowthMarket |


Growth in economy impacts directly the business prospects of general insurance industry in Pakistan.

Private sector GPW CAGR 11% for four years

General Insurance Penetration declined to 0.22% in CY15E from 0.24% in CY11.

2

1

GPW Growth

CY15EPKR 61,552 mln

Industry Fragmentation

GPW GrowthMarket |


1

Large Sized Companies: above 5% market share

Medium Sized Companies: 2% - 5% market share

Small Sized Companies: less than 2% market share

Small Medium Large Total

CAGR (4 Years) 7% 21% 8% 11%


GPW (PKR mln) 7,655 14,917 28,357 50,929

Market Share 15% 29% 56% 100%

No. of companies 15 10 3 28

Mean GPW 510 1,492 9,452 1,819

CY13


GPW (PKR mln) 8,566 16,925 31,402 56,893

Market Share 15% 30% 55% 100%


Mean GPW 612 1,410 10,467 1,962

CY14


GPW (PKR mln) 6,663 13,109 25,597 45,369

Market Share 15% 29% 56% 100%


Mean GPW 444 1,311 8,532 1,620

9M14


GPW (PKR mln) 7,282 14,487 27,315 49,084

Market Share 15% 30% 56% 100%


Mean GPW 485 1,207 9,105 1,636

9M15


GPW (PKR mln) 7,729 11,470 26,556 45,755

Market Share 17% 25% 58% 100%


Mean GPW 483 1,274 8,852 1,634

CY12

GPW Mix by Segments

GPW GrowthMarket |


Fire segment continued to remain the dominated segment

Misc segment size is now more than motor’s, due to health, bond insurance,

and agriculture & livestock insurance.

Medium sized companies are fairly diversified in all segments

1 & 4

9M

15

Fire :

43%

Marine :

11%

Motor :

19%

Misc:

27%

Large Insurers

Fire :

25%

Marine :

13%

Motor :

32%

Misc: 30%

Medium Insurers

Fire :

32%

Marine :

9%Motor :

29%

Misc:

30%

Small InsurersCY11 CY12 CY13 CY14 9M14 9M15

Misc. 9,158 11,688 12,732 14,568 12,108 13,766

Motor 9,586 9,835 11,170 12,583 9,961 11,507

Marine 6,327 6,273 6,356 6,973 5,426 5,743

Fire 18,118 17,958 20,671 22,770 17,873 18,069

42% 39% 41% 40% 39% 37%

15% 14%12%

12%

12% 12%

22% 21%22%

22%

22% 23%

21% 26%

25%

26%

27%28%

-

10,000

20,000

30,000

40,000

50,000

60,000

Segment Mix

Fire Insurance

GPW GrowthMarket |


1& 5

Fire segment growth is attributable to uptick in banks’ private sector credit offtake, revival in

economic activity.

Private sector lending increased in CY13 by PKR 105bln, out of this a fresh investment was made

majorly in the food industry (PKR 48bln) and Chemical industry (PKR 15bln)

In in CY14 by PKR 198bln, out of this a fresh investment was made majorly in the food industry

(PKR 54bln), Chemical industry (PKR 14bln), and the power sector (PKR 32bln)

CY11 CY12 CY13 CY14 9M14 9M15

Fire GPW (RHS) 18,118 17,958 20,671 22,770 17,873 18,069

Banks Lending* (LHS) 2,220,945 2,276,903 2,381,801 2,580,197 2,369,454 2,481,089

17,000

18,000

19,000

20,000

21,000

22,000

23,000

24,000

2,000,000

2,100,000

2,200,000

2,300,000

2,400,000

2,500,000

2,600,000

2,700,000

Fir

e G

PW

(P

KR

mln

)

Ba

nk

Len

din

g (

PK

R m

ln)

Fire Segment Analysis

*Credit to private sector | Excluding Agri, import & export, finance,and personal loans

Marine Insurance

GPW GrowthMarket |


1 & 6

CY11 CY12 CY13 CY14 9M14 9M15

Imports 3,400,926 3,765,924 4,184,045 4,302,146 3,226,609 3,467,970

Exports 2,296,825 2,316,561 2,549,675 2,506,334 1,879,750 1,782,414

Marine GPW 6,327 6,273 6,356 6,973 5,426 5,743

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

Mari

ne

GP

W (

PK

R m

ln)

Imp

ort

& E

xp

ort

(P

KR

mln

)Marine Segment Analysis

Motor Insurance

GPW GrowthMarket |


Government sponsored schemes is helping the motor segment

CY12: Yellow cab scheme 20,000 taxis – GoPb

CY13: Green tractor scheme 20,000 tractors for farmers by GoPb

CY14: Banks financing picked up amidst low interest rate environment and overall improvement in

the economy.

CY15E: GoPb’s Apna Rozgar Taxi scheme – 50,000 taxis, is providing another boost to the motor

segment.

1 , 5 & 7

CY11 CY12 CY13 CY14 9M14 9M15

Auto Loan* (PKR mln) 46,106 45,456 56,045 71,047 65,089 87,231

Motor GPW (PKR mln) 9,586 9,835 11,170 12,583 9,961 11,507

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

90,000

Mo

tor G

PW

Au

to L

oa

ns

Motor Segment Growth | Auto Loan

*Auto loan by commercial banks; outstanding balance at year end

CY11 CY12 CY13 CY14 9M14 9M15

Vehicle Registered (000) 1,882 2,094 2,281 2,400 1,800 2,525

Motor GPW (PKR mln) 9,586 9,835 11,170 12,583 9,961 11,507

1,500

1,650

1,800

1,950

2,100

2,250

2,400

2,550

2,700

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

Nu

mb

er o

f veh

icle

s r

egis

tered

Moto

r G

PW

-P

KR

bln

Motor Segment Growth | no. of Vehicles

Performance

GPW GrowthMarket |


GPW GrowthMarket |


The sector, for the very first time reached underwriting break even in CY13 (combined ratio: 99%). The trend maintained.

The combined ratio improved in CY15E to 95%. The business profile of the sector has been enhanced.

However, the industry needs to focus bringing operational efficiency; expense ratio – the controllable cost – remained

stagnant.

3

Investment income increased to PKR 6bln from PKR 4bln | Return on investments improved to 16% from 10%Total increase in investment income 33%Reason: Dividend (26% increase), Gain on disposal (116% increase), Profit from associate (60%)

CY11 CY12 CY13 CY14 1H14 1H15

Loss Ratio 58% 57% 53% 49% 50% 49%

Expense Ratio 45% 46% 46% 46% 43% 43%

Investment Income Ratio 18% 30% 37% 22% 31% 44%

NPR/GPW (RHS) 53% 50% 48% 49% 50% 50%

40%

42%

44%

46%

48%

50%

52%

54%

0%

10%

20%

30%

40%

50%

60%

70%

Performance - Analytical analysis

Strengths and Risks

Analysis

GPW GrowthMarket |


Strengths/ improvements

Uptick in economic activity is enabling the general insurance GPW growth

Allowance of takaful window operation to conventional insurers shall positively impact the

overall industry

Growth in the miscellaneous segment indicates focus towards diversification; fresh interest in

retail and micro insurance.

Improving investment income, supports bottom-line.

Automation in systems and controls – improving MIS and risk management framework

Focus towards professional HR hiring

Improving governance by the regulator, though lags behind regional peers

GPW GrowthMarket |


Challenges 1. Industry depends predominantly upon banking sector for business growth (traditional

model). Retail penetration is low.

2. Improved Underwriting performance is driven by reduced loss ratio, the benefit was

limited due to high expense ratio – comparatively more controllable factor.

3. Change in treaty terms – tilt from proportional to non-proportional – leading to higher

risk retention or facultative arrangements. Profitable premium retention should be used

in building higher reserves.

4. Catastrophic risk – strong treaty arrangements required

5. Regulatory Risk – very basic solvency requirements. Absence of risk based capital

adequacy model.

6. Small players exposed to regulatory non-compliance

GPW GrowthMarket |


Moderate Risk - maintain



Low Risk - maintain

Low Risk - maintain

High risk - maintain

Challenges

GPW GrowthMarket |


PKR mln Existing Jun16 Dec16 Jun17 Dec17

MCR 300 350 400 450 500

Following companies shall be requiring right issue to meet the requirement

Equity (PKR mln) at end-Jun15

PICIC 96 (paid up capital PKR 350mln)

Takaful Pakistan 173 (paid up capital PKR 300mln)

SPI Insurance 362 (paid up capital PKR 325mln)

Proposed minimum paid up capital requirement (MCR)

GPW GrowthMarket |


0

1

2

3

4

5

6

7

8

AA+ AA AA- A+ A A- BBB+ BBB BBB- BB-

No.

of

com

pan

ies

Insurer Financial Strength (IFS) Rating Paradigm

Nov15

Rating Action

Maintain 21

Upgrade 5 Ace AA | Alfalah A+ | UBL A+ | TPL Direct A | Pak Qatar A

Downgrades 2 Pak Kuwait BBB | Universal BBB-

Initial 2 Sind | Cooperative

TOTAL 30

Suspended 1

Outlook

Stable 24

Positive 3 Adamjee | Habib | Premier

Negative 2 Reliance A | Universal BBB-

Rating Watch 1 Pak Kuwait BBB

TOTAL 30

H I

S

T O

R Y

• Inter CRA client transfer has not been treated as initial

• In case of rating difference only PACRA rating has been taken

Bibliography

1. PACRA’s in-house research and database

2. Pakistan Economic Survey 2014-15, issued by Finance Division, Government of Pakistan. Statistical Appendix_

Growth and investment Table 1.5: Gross National Product at current Prices, page 15

3. Insurance Association of Pakistan | Key Financial Data

4. PACRA’s in-house research and database – A sample of players representing approx. 90% of the market share in

private sector, prorated to entire industry.

5. State Bank of Pakistan | Loans to Private Sector Business by type of Finance |

http://www.sbp.org.pk/ecodata/index2.asp

6. Pakistan Bureau of Statistics| http://www.pbs.gov.pk/sites/default/files//tables/14.1.pdf

7. Pakistan Economic Survey 2014-15, issued by Finance Division, Government of Pakistan. Table 13.3_Number of

motor vehicles registered, page 162.

http://www.sbp.org.pk/ecodata/By-type-of-finance.pdf

http://www.sbp.org.pk/ecodata/index2.asp

http://www.pbs.gov.pk/sites/default/files/tables/14.1.pdf

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

[email protected]

Jhangeer Hanif

[email protected]

Haider Imran

[email protected]

Mahina Majid

[email protected]

Rai Aman Zafar

[email protected]

Contact Number: +92 42 3586 9504

mailto:[email protected]

General Insurance Sector Updatepacra.com.pk/uploads/doc_report/G_Ins_Nov15.pdf · Haider Imran...

Documents

Transcript of General Insurance Sector Updatepacra.com.pk/uploads/doc_report/G_Ins_Nov15.pdf · Haider Imran...