An Analysis by liuqingzhan


									An Analysis

Principal, Hailey College of Banking & Finance, University of the Punjab, Lahore Pakistan,
Email: – Website: Mob: 03334363363
Member Governing Council, International Federation of Accountants (IFAC) (1997-2000),
President, South Asian Federation of Accountants (SAFA) (1997), President, Institute of
Cost and Management Accountants of Pakistan (1997-2000), President, Association of
Management Development Institutions of South Asia (AMDISA) (1993-96), Pro Vice-
Chancellor University of the Punjab, Lahore (1994-1996), Founder Director, Institute of
Business Administration (IBA), University of the Punjab, Lahore (1973-1996).

In an earlier article, potential of Life Insurance in Pakistan was well
highlighted. This piece looks at the Insurance Sector in Pakistan with special
focus on the listed insurance companies in the country. There were thirty (30)
listed companies on the Karachi Stock Exchange as on November 30, 2006.

This piece has been divided into the following parts:

    PART                                         FOCUS
      I            Insurers/Re-insurers Registered companies under the Insurance
                   Ordinance, 2000
       II          Listed Insurance Sector Review:
                   November 30, 2006
      III          KSE Insurance Sector:
                   Selected Companies Product Analysis 2005

The above are now reviewed below:

                    INSURANCE ORDINANCE, 2000

SECP has displayed names and contact numbers of insurers/re-insurers
registered under the Insurance Ordinance, 2000. An abridged position in
respect of fifty-two (52) is tabulated below:

                                     Table: 1
      SECP: List of Insurers/Re-insurers Registered Under the Insurance
                                Ordinance, 2000
 S. No.                        Particulars                  Number       %
    1     Non-Life/General Insurers                             42       81
    2     Others:
               Foreign non-life Insurance                      02
                  (Private Sector)
               Local Life Insurance (Private)                  02
               Foreign Insurers (Private)                      02
               State Owned Life Insurance (SLIC)               01       19
               Takafal (non-life) Co.                          01
               State Owned Re-insurers                         01
                                                               52       100
   Compiled from: Download material from: / Insurance Companies.htm on 12-04-2006.

The above table presents the names of various Insurance/Re-insurance
Companies in Pakistan.

There are thirty (30) insurance companies listed on Karachi Stock Exchange.
Their broad position is captured in the following table:

                                  Table: 2
    KSE: Insurance Sector: Above Par and Below Par Share Value Analysis
      S. No.                 Particulars             Number         %
         1                 Above Par Value             24           80
         2                 Below Par Value             06           20
                                                       30          100
   Source: Compiled from: Daily Quotations of Karachi Stock Exchange (Guarantee) Limited, November 30, 2006.

There is a need to undertake review of six (06) companies whose market price
of shares is below their par value. Ideally there should be no listed insurance
company with its market price below par. This is very important to inspire
confidence in the world of business. Good management / business practices
should be operationalized to ensure success and to be excellent performers on
the stock market. Securities and Exchange Commission of Pakistan (SECP) may
initiate research to examine the situation for improvement. Similar initiative

may also be undertaken in the Ministry of Commerce, Government of Pakistan,
The following table has been prepared showing significant indicators:
                                                   Table: 3
                         Listed Insurance Companies in Pakistan
                                   Significant Indicators
S. No.            Particulars                Total Number            Insurance Sector            Percentage
            KSE Listed
  1                                                 652                        30                        5
            Companies (Number)
  2         Paid Up Capital
                                                    518                        07                      1.35
            (Rs. billion)
  3         Turnover
            (Number billion)
                                                    0.56                      0.57                     1.02
  4         Market
            Capitalization                        2.,952                       73                      2.47
            (Rs. billion)
  5         GDP ($b)                                128                       1.21                     0.94
     Source: Computed From: Daily Quotations of Karachi Stock Exchange (Guarantee) Limited, November 30, 2006.

An analysis of above table reveals the following:
1)        There is a tremendous potential to be exploited relating to development
          of insurance sector in Pakistan.
2)        Stakeholders moot is needed to develop a marketing strategy for
          promoting insurance culture in Pakistan with an emphasis on:
          (i)      Develop new products to meet the needs of the society. One can
                   benefit from global experiences.
          (ii)     HRD be accelerated to attract and absorb executives for focusing
                   attention on:
                   (a)       Increase in Premium business.
                   (b)       Maximize investment yield on available funds.
                   (c)       Insurance education needs to be given top priority by all
                   (d)       Graduates be given an intensive four months training to
                             utilize their services for leg work for expansion in insurance

                      business. Solid institutionalized arrangements be made
                      with appropriate logistics.
               (e)    Performance       –   reward   system      for   incentives   and
                      compensation be conceived and later introduced.
               (f)    Periodical monitoring relating to performance by insurance
                      executives be institutionalized.
               (g)    All other factors constituting marketing strategy be
                      included   to     evolve   a   consensus     building   insurance
                      marketing strategy.

3)      P3   (Public Private Partnership) be introduced with facilitation support

        by the Ministry of Commerce, Government of Pakistan for strengthening
        insurance sector in Pakistan.
4)      Sound bench marks be established. Short-term (One Year) medium-term
        (3 to 5 Years) and long-term (10 Years) plans be developed to achieve
        high profile targets compared to the best practices benchmarks for
        achieving success.

                   PART–III: KSE: INSURANCE SECTOR:

Research reveals that there are only four major revenue drivers in non-life
insurance sectors in Pakistan. This position is captured below:

                                  Table: 4
     Products Offered as Revenue Drivers by Listed Insurance Companies in
                           S. No.      Products
                              1           Fire
                              2         Marine
                              3          Motor
                              4      Miscellaneous

Adamjee Insurance Company Limited has released performance of ten (10)
leading insurance companies in Pakistan for the year 2005. Their names are
listed below:

                                              Table: 5
                   Ten (10) Leading Pakistani Insurance Companies
S. No.         Name                           Insurance Company
1              Adamjee      Adamjee Insurance Company Limited
2              Askari       Askari General Insurance Company Limited
3              Atlas        Atlas Insurance Limited
4              East West    East West Insurance Company Limited
5              EFU          EFU General Insurance Limited
6              Habib        Habib Insurance Company Limited
7              IGI          International General Insurance Company of Pakistan
8              NJI          New Jubilee Insurance Company Limited
9              Premier      The Premier Insurance Company of Pakistan Ltd
10             Shaheen      Shaheen Insurance Company Limited
Source: Extracted from: Comparative Study for the year ended December 31, 2005, Adamjee Insurance Company
Limited, P.1.

The following research based table has been prepared in respect of gross
premium written of Rs. 18.6 billion:

                                         Table: 6
                              Gross Premium Written 2005
         S. No.               Company             Rs. Billions                             %
            1             Adamjee                     6.7                                  36
            2             EFU                         6.6                                  36
            3             NJI                         1.7                                  09
                                                     15.0                                  81
           4              Other* Seven (07)           3.6                                  19
                                                     18.6                                 100
Source: Computed from: Comparative Study for the year ended December 31, 2005, Adamjee Insurance Company
Limited, P.16.

* Shaheen, IGI, Premier, Askari, Atlas, Habib and East-West.

This table shows that three (03) companies dominate the scene (81 %) and the
remaining seven (07) have 19% share of the market share in gross insurance
premium. This presents a wake up call for expansion and development of
insurance sector in Pakistan.

A detailed analysis reveals the following results in respect of the foregoing ten
(10) leading insurance companies in Pakistan. The results are tabulated below:

                                           Table: 7
                                        Revenue Drivers
   Company                 Fire             Marine                   Motor           Miscellaneous
   Adamjee                  36                33                      22                  31
     EFU                    25                24                      40                  10
     NJI                    07                08                      04                  22
    Others:                 32
     -Atlas                                       08
    Others:                                       27
   -Shaheen                                                            05
    Others:                                                            29                    05
    -Askari                                                                                  68
    Others:                                                                                  32
                            100                  100                  100                   100
Source: Computed from: Comparative Study for the Year Ended December 31, 2005, Adamjee Insurance Company
Limited, PP. 3-4.

It is apparent that there is a crying need for diversification of revenue drivers
and development of insurance business in Pakistan. All concerned may start
thinking of a breakthrough approach for the development of the insurance
sector in the overall economic development of Pakistan.

                        CONCLUSIONS & SUGGESTIONS
Various conclusions have been drawn from analysis of insurance sector in
Pakistan in the foregoing pages. Recommendations have been offered with
humble approach. It is time now that all stakeholders may address the
challenges identified and respond positively with a sense of urgency. The
earlier this is done the better.


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