In Focus:Decelerated GDP Growth to Impact Insurance Business… (23122008)

The country’s GDP growth, has remained above 6 percent on average in previous years. However expected growth above 5% in the current year, is unlikely to be achieved. Due to the depleting economic situation with expanding current account deficit, the mounted inflationary pressure, increasing interest rates may pose serious challenges to sustain the rising trends so far witnessed in this sector. After the acceptance of IMF financial assistance package with the conditions to cut down expenditures and increase revenues growth is anticipated to take a major hit. As the insurance business is directly correlated with the economy the slowdown will dampen the insurance business.
Decline in Automobile Industry to Impact the Motor Segment…
Automobile industry has posted a substantial decline of 55 % in Jul-Nov FY09. Motor segment contributing a substantial part approximately 50% of the net premium of the industry, not expected to pose any considerable growth due to the high interest rate environment and hampering car financing facility.
Expanding Trade Activities to Flourish the Marine Segment…
Marine segment is the most profitable segment, due to low claims, as the claim ratio stood between 30-40%. It is expected to flourish with expanding trade activities, as trade activities grew by 18% in the period Jul-Nov FY09.
Slowdown in Construction & Industrial Activity to Influence the Fire Segment…
There has been witnessed a decline in construction activities as local cement dispatches continue to decline. Further slowdown is expected as government has reduced the PSDP allocation by Rs100bn. The segment is expected to grow at a slower pace.
Miscellaneous Segment to Expand…
Miscellaneous segment consist of numerous insurance cover, such as health, bond and agriculture insurance etc. Crop insurance is a new introduction and is expected to do well as 22% of our GDP consist of agriculture. In the previous budget crop insurance was exempted of 5% FED to promote the product by the GoP. However addition to the premium gained will be limited as the SBP has limited the premium earned to 2 %.
Claims to Remain on Higher End…
Claims have been a major hit for the sector, which approximately stood above 70% FY07 compared to the average of 65% in the previous years. It is expected to slowdown, while due to occurrence of unforeseen/uncertain events the variability of claims is inherent in insurance business.
Investment Income not to Contribute to Profitability…
The sector is highly dependent on investment income for which the future is very much uncertain due to the bearish spell in the capital markets. More than 80% of the investments are invested in the equity markets.