Chapter 19: The Insurance Industry

Presented By:

SANAULLAH

ZOHAIB AHMED

TAHIR ZAMAN

Money and Banking in Pakistan

6th edition

By: S.A Meenai

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INTRODUCTION

• Discussing the History of Insurance industry

• Challenges faced by the industry

• Performance of insurance industry.

• Contribution of different insurance companies to

insurance industry.

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OUTCOMES

• Insurance industry introduction and brief history.

• Financial performance of insurance companies.

• Contribution of insurance companies to over all growth

of insurance industry.

• Types of insurance companies.

• Working of insurance companies.

• Reinsurance company in Pakistan.

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Insurance Sector Of Pakistan

• The insurance sector in Pakistan comprises of:

• one general re-insurance company

• Five life insurance companies

• 52 non life insurance companies (General insurance companies)

• Three Takaful companies (2009)

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Life Insurance Companies

Life insurance is a contract where by the

Insurer , in consideration of a premium paid

either in lump sum or in periodic installment

Undertakes to pay an annuity certain sum of money

Either on death of the insured or an expiry of a certain

No of years which ever is earlier.

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General Insurance Company

General insurance or non-life insurance policies,

including automobile and homeowners policies, provide

payments depending on the loss from a particular

financial event. General insurance is typically defined as

any insurance that is not determined to be life insurance.

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Takaful Insurance Companies

Takaful is a co-operative system of reimbursement or

repayment in case of loss, paid to people and companies

concerned about hazards, compensated out of a fund to

which they agree to donate small regular contributions

managed on behalf by a Takaful Operator

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• Since FY 2003 the number of foreign companies in both

life and general Insurance has decreased

• To attract/ retain the foreign investment in insurance

sector, SECP has devised some strategies

• 2003-09 Assets are increased from Rs.150 to Rs.450 b

• 2007-11 Capital adequacy ratio has increased from Rs.300

to Rs.500 b

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• 2002-07 Reserves and net earnings increased from Rs.10 to Rs.60 b due

to increase in profitability level in insurance sector

• 2003-08 ROI increased from 15% to 50% due to buoyancy of the stock

market and insurance industry associated capital gains

• No ceiling on level of equity investments by insurance companies.

• Greater portion of investment in government securities (T-bills and PIBs).

• Insurance companies can replace DFIs.

General insurance companies performing better than life

insurance companies in recent years.

Net premium of these companies has tripled during 2002-07 .

At the end of 2007 net premium amounted to Rs. 23 billion.

• Insurance business in Pakistan has a relatively high risk profit.

Claim ratio stood 65% in 2007.

• Claim ratio has continued to rise during 2008 and 2009.

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• Capital adequacy ratio has remained stagnant during 2002-2007

despite growth in equity.

• The paid up capital to total equity ratio has fallen from 41% in 2002

to 14% in 2007.

• Claim ratio has risen by 10 percentage points during 2002-2007.

• Risk retention ratio has fallen from 70% in 2005 to 52% in 2007.

• Life insurance companies had 59% share in total assets of

insurance industry in 2007.

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• In 2007 only five companies operating in insurance industry.

• They invest in government securities during 2002-2008

about 80% of investment income came from securities.

• During 2001-2007 claim ratio for life insurance has been

lower than that of general insurance sector.

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Pakistan reinsurance company ltd.

• State owned in terms of assets consists of 3.2% of total insurance

industry assets.

• Total assets were 10.4 billion in 2007 as against 6.4 billion in 2006.

• Paid up capital has risen seven folds.

• Investments have more than tripled.

• From 2001-2007 profits have risen from 67 million to 3.7 billion.

• Risk is being shared with international reinsurance companies.

• SECP yet to develop regulatory framework for Takaful industry.

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