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Insurance Sector

- - - - - Insurance Sector Insurance

55 replies to this topic

#1
AbDuLmAtEeNkHaN

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    Insurance sector profit grows 26pc Posted Image Posted Image Posted Image Friday, November 02, 2007
    By our correspondent

    KARACHI: During the first nine months of the year 2007, most of the private listed non-life insurance companies listed on local bourses depicted a growth of approximately 26 per cent by registering a profit after tax (PAT) of Rs3.9 billion.

    In the corresponding period of last year, these companies had registered a growth of 25 per cent to Rs31bn. In 2006, private non-life insurance sector's gross premium grew by 23 per cent to Rs28bn

    Higher investment income is the major reason behind the decent net profit growth of the sector, which registered an upsurge of 31 per cent to Rs3.6bn primarily due to increase in the capital gain income, a research report prepared by First Capital Research said.

    Insurance sector in Pakistan is considered as under penetrated versus region. On the basis of 2005 premium, insurance penetration and insurance density in Pakistan is recorded at 0.4 per cent and US$2.8, which is one of the lowest in the region. Interestingly, average insurance penetration in Asian countries and the world are recorded at 1.67 per cent and 3.18 per cent, respectively. While insurance density in Asia and the world on an average is at the level of US$48.3 and

    US$219, respectively. The FCEL in its analysis consisted 11 non-life insurance companies that are listed on local bourses and occupy 82 per cent share in total non-life insurance sector. On the flip side, underwriting business of 11 insurance companies registered a decline of 3.2 per cent to Rs911million. While net premium increased by 10 per cent with a 46 per cent growth in miscellaneous sector at Rs1.3 billion.

    Besides this, on the basis of net premium, motor business also witnessed an increase of 13 per cent to Rs6.56bn. Marine and fire insurance segment recorded a modest growth of one per cent and 0.4 per cent, respectively.

    Posted Image




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    #2
    gemini2gr8

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    Capital gain tax:

    A big market anomaly at work

    November 27, 2007 (JS Research)


    Over the last few weeks we have witnessed a sudden rush, especially among the insurance companies, to book massive unrealized capital gains on their investment portfolios. In this report, we analyze how the exemption of capital gain tax until June 2008 has triggered off this trend and how this realization of capital gains would impact valuations and earnings of these companies.


    Capital gain tax exemption to stay until Dec 2007
    In the last Budget FY08, the government extended the exemption of capital gain tax until June 2008. However, those companies whose financial year ends in December can avail this exemption only up to Dec 31, 2007. This explains the recent trend mainly in the insurance companies which are flocking to avail this exemption in the current year by realizing completely or partly their substantial unrealized capital gains on equity portfolios.


    No major impact on fundamentals and valuations
    In recent times, Pakistan market has witnessed an anomaly in the form of sudden interest in the stock of those companies which either have realized or will realize capital gains on their investment through its sale and simultaneous buy back. Investors’ overreaction to such transactions is quite irrational, given the fact that the realization of capital gains is not likely to cause any immediate impact neither on the cash flows of these companies nor on the fundamentals of their core business. The only positive outcome for such companies is the substantial one-off jump in their total reported earnings in the current year, only to be followed by some reduction in their future earnings as substantial capital gains will not be available for realization to boost net profitability.


    AICL: Rs32 per share one–off impact in 2007
    As we mentioned in our Morning Briefing last Friday, the management of Adamjee Insurance has planned to book around half of its total unrealized gains on investment portfolio by the end of 2007. Thus, it is expected that in 4Q2007 Adamjee could realize capital gains to the tune of Rs3.2bn (per share impact of Rs32). Our calculation is based on its total equity portfolio whose book value is Rs4.5bn (Rs44 per share) against its yesterday market value of Rs11.2bn (Rs110 per share). Equity portfolio is as of Dec 31, 2006 and has been adjusted for bonus issues and further share purchases during 2007.

    PAKRI: Sitting on Rs67 per share capital gain
    Pakistan Reinsurance has recently enhanced its authorized capital from Rs1.0bn to Rs4.0bn and booked Rs2bn capital gain on its holding of NIT units. However, it still has around Rs3.6bn (Rs67 per share) unrealized capital gains on its equity portfolio. We believe that the company would partly book its capital gains (either by off-loading or mark-to-market its portfolio) and subsequently issue bonus shares. This would help it not only benefit from capital gain tax exemption, but also meet SECP’s minimum paid up capital requirement of Rs300mn by 2011.

    EFUG: Rs92 per share 2007 earning impact
    EFU General Insurance will hold an EOGM on Dec 14, 2007 to get approval for recognizing unrealized capital gains of Rs9.2bn on its 40.33% strategic equity stake in its associated company, EFU Life Assurance through selling and simultaneously buying back this stake in the group company. This transaction will result in a one-off impact of Rs92 per share on the net earnings of the company in 2007.

    CICL: To end up with Rs157 per share gain
    Following footsteps of its industry peers, Central Insurance will be holding an EOGM next month to get approval for the purchase of shares of its associated companies, after their purported sale. As per our estimates, this realization of capital gains would have a per share impact of Rs157 on the net earnings of the company in 2007.

    PKGS: Rs46 per share capital gain in 2007
    Like previous year, Packages recently undertook revaluation of its strategic equity stake in two of its associated companies, i.e. Nestle Pakistan and Tri-Pack Films, last month. As per our estimates, the sale and buyback of its stake will positively impact its 2007E earnings by Rs46 per share.

    Banks: New tax laws to cause 1-2% earning decline
    In Budget FY08, a new Income Tax Ordinance 2001 was introduced for banks in order to simplify tax related rules and regulations pertaining to the sector. In this new separate schedule, capital gains tax of 10% on the sales of shares of listed companies was introduced for banks, provided that the shares of the listed companies are not disposed off within one year of the date of acquisition. However, if shares are sold within one year, 35% tax would be applicable.

    The implementation of this new income tax ordinance was, however, delayed for 2008. Thus, this new tax law would come into force from the start of 2008, resulting in a negative 1-2% impact on the annual sector earnings in 2008-10. In the long run, we believe, it would help curb volatility in banks earnings as it would prevent them from getting involved too much in trading activities.
    Ovais Siddiqui, CFA
    ovais.siddiqui@js.com
    92 (21) 111-574-111(Ext. 3097)
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    #3
    Mudassir

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    SBP for exploring effective crop insurance mechanism

    In order to increase the flow of credit to agriculture sector, State Bank of Pakistan (SBP) has issued directive for exploring effective crop insurance mechanism to mitigate the risks of losses in case of natural calamities.

    ACCORDING TO SBP CHIEF, AN ANALYSIS OF INTEREST RATE PRICING MECHANISM OF BANKS ON THEIR AGRI LENDING SHOULD ENSURE THAT FARMERS ARE NOT OVERCHARGED: This directive has been issued by the Governor State Bank of Pakistan Dr Shamshad Akhtar while chairing the mid-term review meeting of Agricultural Credit Advisory Committee (ACAC), held at SBP head office on Tuesday.

    She said that an analysis of interest rate pricing mechanism of banks on their agri lending should ensure that farmers are not overcharged but at the same time banks are able to effectively recoup the cost of administration and are able to price the associated risk properly. "To initiate, a crash educational programme would also be started for the capacity building of the agri/rural credit officers of banks in order to improve their capacity in agri financing," she added.

    She instructed the Ministry of Food, Agriculture & Livestock (Minfal) and the State Bank to develop a comprehensive mapping of districts/villages where government initiatives are underway to facilitate banks in lending to respective areas. She said that banks should also make liaison with provincial governments in expediting the computerisation of land record.

    The meeting was informed that overall credit disbursement to the agriculture sector during the first half (July-December, 2007) of the current fiscal year has been good and based on the achievements, it is hoped that the indicative disbursement target of Rs 200 billion for the year will be achieved.

    During the first half of FY08 overall Rs 90.3 billion disbursed to the agriculture sector as against Rs 71.7 billion disbursed in the same period last year, showing an increase of Rs 18.6 billion or 26 percent. The overall disbursement during July-December, 2007 is about 45 percent of the full year target and is in line with the percentage achieved during the same period last year.

    The meeting was also informed that five big commercial banks (ABL, HBL, MCB Bank, NBP and UBL) as a group disbursed Rs 44.9 billion, ZTBL Rs 23.9 billion, domestic private banks Rs 19.1 billion and PPCBL Rs 2.4 billion as against disbursements of Rs 34.3 billion, Rs 24.2 billion, Rs 10.2 billion and Rs 3.0 billion respectively in the same period last year. Percentage share of five big commercial banks and domestic private banks in total disbursement increased from 48 percent to 50 percent and from 14 percent to 21 percent while the share of ZTBL and PPCBL declined from 34 percent to 26 percent and from 4 percent to 3 percent, respectively.

    The province-wise disbursements during July-December, 2007 depict that the share of Sindh in total disbursements has improved from 9.9 percent to 11.3 percent over last year whereas the disbursements to other provinces remained almost at the same level.

    Disbursements in Sindh have increased by Rs 3 billion or 44 percent to Rs 10.2 billion as compared to the same period of last fiscal year. The sector-wise disbursement shows that the share of non-farm sector has increased to 27 percent from 13 percent during the first half of FY08.

    To facilitate and encourage banks to focus on non-farm sector, SBP has taken a number of initiatives, which include issuance of guidelines for livestock & fisheries financing, horticulture financing and recently designed a financing scheme for small farmers based on group lending methodology.

    The meeting dwelt at length on ways and means to further enhance the outreach of the rural financing and came up with several proposals in this regard. Dr Akhtar said that the State Bank is taking a number of initiatives for financial inclusion of rural population and in this regard it has developed a micro-finance strategy in collaboration with the stakeholders.

    A key to enhancing financial penetration and augment inclusion is to enhance greater commercialisation of both agriculture and non-agriculture industry with government focusing on creating a conducive and enabling environment.

    She said that the subsidised lending has proved unsuccessful across the world. She emphasised on commercialised lending to the rural sector at an effective pricing so that it could be beneficial for both the farmers and the commercial banks.

    Speaking on the occasion, Zia-ur-Rehman, Secretary, Minfal appreciated the efforts of SBP and banks in increasing outreach of agri credit. He gave a presentation on government's initiatives for the development and promotion of agriculture sector.

    He said that Minfal has initiated 62 projects at a cost of Rs 130 billion while the allocation for the current year is more than Rs 15 billion for the development of agriculture sector. He said that we are encouraging private sector to play its vital role in the development of this sector.

    He said that banks should plan to disburse maximum agricultural credit at lowest possible mark up to meet the growing requirements of farming community. He also suggested that the processing time for the disbursement of agricultural loan should be minimised. He stressed upon banks to accept animals as collateral for the diversification of agri credit to non-farm sector.

    A presentation by the chairman of SBP Committee for Development of Guidelines for Innovative Lending Technologies for Agri/Rural Credit Enhancement was also made. The governor has requested SBP and PBA to work out a timetable for implementation of the various initiatives suggested for enhancing rural credit.

    The meeting was attended, among others, by senior officials of the State Bank of Pakistan, presidents and representatives of commercial banks, ZTBL and PPCBL, officials of federal and provincial governments, chambers of agriculture, farmers' associations and other stakeholders.-PR

    Mudassir Javed Khan


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    Mudassir

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    'Third party certificates': authorised insurance companies to issue

    In consultation with the Insurance Association of Pakistan (IAP), the Securities and Exchange Commission of Pakistan (SECP) would launch a scheme on March 31 to ensure issuance of 'third party insurance certificates' by the authorised insurance companies, eliminating chances of bogus unauthorised and fraudulent companies to operate.

    The SECP on Thursday released details of the new scheme to make things easy for the genuine certificate holders claimants. Under the new scheme, the excise and taxation department will ensure that all third party insurance certificates submitted at the time of payment of motor vehicle tax are issued by registered insurance/takaful companies. The ministry of interior has agreed with the SECP to ensure strict compliance.

    The IAP has agreed to issue third party insurance certificates which provide for admission of liability "on a no fault basis". The compensation made under this policy will be as per the schedule of benefits of Workmen's Compensation Act 1923 prevalent capital benefits are Rs 200,000 per life, subject to an overall aggregate limit on one accident of Rs 10 million and compensation shall be payable to the third party without going to courts.

    The SECP shall provide a list of registered insurance companies who are authorised to issue the certificates. Excise & taxation department shall only accept certificates issued by these entities. The IAP has drawn up a scale of charges, which would be followed by insurance/takaful companies.

    To ensure that motor certificates issued by authorised insurers/takaful operators only are accepted by the concerned "excise and taxation" offices and for the success of the scheme, it was agreed that a close liaison be maintained by SECP and IAP with the relevant senior officials of the respective provinces and for this purpose SECP had senior level meetings in Sindh and Punjab provincial department.

    In order to ensure that motor third party insurance certificates cannot be faked/forged easily, IAP will issue third party certificates on security paper with built in security features. Moreover, in order to minimise harassment from police officials, the IAP will design and introduce insurance tokens, which will be displayed by the insured vehicles on their windscreens.

    On the same pattern, the IAP agreed to set up a website for maintaining database for valid motor third party insurance covers issued by their member companies. This website will assist the "Excise & Taxation" and other law enforcing agencies to determine genuineness of the insurance certificate being presented to them.

    Under this scheme about seven million vehicles plying on the road, including more than 50 percent motorcycles, will have proper motor third party insurance cover, as against mere 10 percent vehicles having insurance cover from authorised insurance/takaful companies.

    The SECP and the IAP would shortly launch a massive publicity and awareness campaign for launching the proposed scheme on March 31. The SECP has pointed out that the scheme was being launched on the directive of Prime Minister Mohammadmian Soomro that third party insurance coverage should be effective and as per law.

    Recently, an inter-ministerial meeting discussed the proposal of the SECP for eliminating issuance of bogus motor third party compulsory insurance certificates by unauthorised persons/entities. The meeting was held on February 12 under the chairmanship of Federal Minister for Finance, Dr Salman Ali Shah.

    The SECP Chairman Razi-ur-Rahman Khan briefed the meeting of the pros and cons of the SECP proposal to eliminate issuance of bogus third party insurance certificates.

    The proposal developed by SECP, in consultation with the IAP recommends for an efficient and effective process to ensure that only authorised insurance companies issue third party insurance certificates and bogus certificates issued by bogus companies are not entertained.

    The meeting agreed to SECP's proposal and gave a go ahead for its implementation. Subsequent to this, chairman SECP also held a meeting with IAP to review the proposal and finalise the implementation details.

    Mudassir Javed Khan


    #5
    Mudassir

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    General insurance profits up by 102 percent

    Despite a high growth of 26 percent, witnessed in net claims due to turmoil following the assassination of Benazir Bhutto, the non-life insurance sector's profit grew by 102 percent in the year 2007 on the back of capital gains booked on investments.

    The sector's combined profitability surged to Rs 27.2 billion in 2007 against Rs 13.4 billion earned in the corresponding period in 2006. On the other hand, the sector's net claims increased by Rs 2.8 billion to Rs 13.265 billion in 2007 as compared to Rs 10.505 billion in a year back.

    "The significant growth of the sector was mainly due to high capital gains booked on investments so as to take advantage of the capital gain tax exemption, which might end in 2008", Usman Zahid, an analyst at JS Global Capital Limited said.

    Total net premium of the sector soared by 12 percent to stand at Rs 18.7 billion in 2007 as against Rs 16.7 billion in 2006. However, this rise in premium could not translate into higher underwriting profits as they registered a decline of 71 percent primarily due to considerable rise in net claims, net commission and underwriting expenses which rose by 26 percent, 7 percent and 21 percent respectively.

    The high growth of 26 percent, or Rs 2.8 billion, witnessed in net claims in 2007 can also be attributed to the turmoil that took place in the country following the assassination of Benazir Bhutto. The claim ratio rose by 800 bps to 71 percent against 63 percent in 2006, while expense ratio increased by 100 bps, to 19 percent. Consequently, the sector's combined ratio (expense ratio + claim ratio) rose to 90 percent in 2007 versus 81 percent in 2006.

    Mudassir Javed Khan


    #6
    Mudassir

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    Four listed insurance companies' share's trading suspended

    The Securities and Exchange Commission of Pakistan (SECP) has ordered the suspension of trading in the shares of the four listed insurance companies for a period of 60 days w.e.f January 30, 2009.

    In a notice issued here on Friday, the SECP said that these four insurance companies namely Dadabhoy Insurance Company Limited, Progressive Insurance Company Limited, Platinum Insurance Company Limited and Union Insurance Company Limited are non-compliant with various provisions of the Insurance Ordinance, 2000.

    In view of the above and in order to avoid any market abuse, the SECP in exercise of its powers under Section 9(7) of the SECP Ordinance, 1969, ordered the suspension of trading in the shares of the said companies in the public interest.

    Mudassir Javed Khan







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