General insurance sector share prices soar amid earning decline

Investors in the stock market witnessed a sudden 4.2 percent return on general insurance sector shares last week while the earnings of 60 percent of the companies decreased in the first quarter of the current financial year.

In the last week, general insurance held 9.7 percent of total turnover at the Dhaka Stock Exchange (DSE).

The market capitalisation of general insurance is only Tk4,652 crore or 1.8 percent of  total market capital at the DSE. The price earnings ratio stood at 11.7 while the DSE price earnings ratio was 15.85. 

A top official of a leading brokerage house, on condition of anonymity, said that most of the general insurance companies have low capital. 

"So, the investors can easily manipulate their share price. Otherwise there is no reason to increase their share price on the floor price mechanism," he said.

General insurance business mostly depends on letters of credit for export-import. However, amid the pandemic, export-import businesses are under pressure, he added. 

Among the 35 general insurance companies listed on the DSE, 17 companies declared dividends to their shareholders for the 2019 financial year, and 15 of them published a first quarter earnings report this year.

Out of the enlisted companies, only Prime Insurance failed to pay a dividend to its shareholders and two companies - named Peoples Insurance Company Limited and Paramount Insurance Company Ltd paid dividends below 10 percent. 

Dividends of 56 percent of companies remain unchanged, while 78 percent of companies posted moderate growth last year.

The highest 25 percent cash dividend was paid by Reliance Insurance and their earnings also grew by 18 percent for the 2019 financial year. 

In the first quarter of the current year, it posted a 21 percent growth in its earnings.

Meanwhile, 15 companies in the general insurance sector published their first quarter reports of the current financial year. 

Out of the 60 percent companies, profit declined due to the worldwide outbreak of the novel coronavirus, while two companies named Prime Insurance and Paramount Insurance posted losses.

United Insurance has published its half yearly report of this year. The company posted a 59 percent fall in profit during the period. In the countrywide general holiday period, the company's profit declined by 74 percent. 

Sheikh Kabir Hossain, president of Bangladesh Insurance Association told The Business Standard that they were facing tough times due to an economic slowdown in the pandemic period.

Seeking anonymity, a senior official of a leading insurance company said that in the last year insurance regulators had strictly banned unethical commission business in this sector and fixed the operational expense limit. 

In this regard many companies lost their businesses, but this loss was for a short time. This regulatory movement will play a positive role in the future, he added. 

A market insider said that to convince consumers to buy an insurance policy, the industry was reliant on agents who persistently contact potential clients. 

"These agents have to be paid a portion of the first year's premium as well as a smaller percentage of future premiums collected from the customer. To encourage these agents, insurers may offer commissions up to 70 percent. These practises are badly affecting claims settlement," he added. 

According to LightCastle Partners, as most companies are concentrated in urban areas, there is a large market in rural areas that is not being accessed. 

A lack of enabling regulations, infrastructure, and market data limits the quality of insurance products, as well as their coverage. This is evident as even though Motor Third Party Liability insurance is compulsory, it only has a penetration of 70 percent, says the consulting firm. 

Insurers earn returns on the assets they invest with funds raised from premiums collected. Policy mandates that 30 percent of the funds be invested in government securities and the remainder can be invested in shares, fixed assets and fixed deposits.