Insurance and Takaful Companies In 2021, insurance premiums for both the life and non-life sectors increased following a resumption of economic activities. Gross premiums for life registered a significant jump due to a doubling of group premiums as the national health insurance program expanded. With more health insurance policies being underwritten, claims for life also increased resulting in an overall increasing claims ratio.
Nevertheless, the life sector posted higher profits on the back of increase in premiums. In the non-life sector, fire and property damage premiums drove the increase in non-life gross premiums, however, non-life claims did not register a significant increase as fire and property witnessed significant decline vis-à-vis the one-off spike in claims during the previous year caused by the urban flooding in the southern parts of the country.
Accordingly, the profitability of the non-life sector posted appreciable increase in CY21. Despite a few insurers not meeting the solvency requirements in CY20, solvency indicators have improved for the insurance industry in CY21. Overall solvency indicators remain at a comfortable level. Given the challenging macroeconomic environment at both global and domestic front, growth and performance of the insurance sector will remain dependent upon the emerging macro financial conditions and business activity in the economy.
Insurers operating in Pakistan generally have ‘traditional’ business models – with sufficient loss absorbency capacity, favorable pricing and low leverage utilization – indicating that they have adequate financial standing and are less likely to become a source of systemic risk. It is important to note that due to the unique nature of insurance business i.e. inverted production cycles168, longer-term investment horizons (especially for life insurers), built in checks and buffers (e.g. penalties on premature withdrawals), contained interconnectivity and low potential to create contagion effects in the financial system, insurers in general do not significantly contribute to systemic risk in the financial system. However, since a few insurers operating in Pakistan dominate the market and they have systemic importance for the economy, enhanced supervision and regulation of these entities remains important.
Outlook Going forward, growth in life premiums partly depends on the sustainability of the national health insurance program while macro financial conditions will be important for the performane of non-life insurers … Growth and performance of the insurance sector will remain dependent upon the level of business activities in the context of emerging macroeconomic conditions, dynamics of global commodity prices, and geo-strategic and political situation in the country.
Given the country’s geopolitical situation and fiscal constraints, the sustainability of the national health insurance program which is underwritten by a leading insurer, will be a key determinant of growth in group premiums for life insurance sector. In addition, Pakistan’s macro financial conditions especially the level of economic activity and future trade scenario and growth in car sales and auto financing will remain important for the growth of marine, aviation, transport, and motor premiums.
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