KARACHI: Major listed non-life insurance companies posted an average earnings decline of 45 percent during the first quarter of 2009 mainly on account of downturn in equity markets, according to a report of a brokerage house Monday.

It analysed 15 out of 24 listed non-life insurance companies, representing approximately 90 percent of the total listed sector gross premiums.

The analysis excludes the one timer share of profit from associate booked by IGI Insurance on account of gain on disposal of investments by Packages Limited, including which profitability would have risen by 109 percent, said analysts at JS Research.

Non life insurance sector recorded net profit of Rs 510 million in 1Q2009 versus profits of Rs 942 milllion in 1Q2008, a decline of 45 percent YoY as subdued activity in the equity markets kept investment returns under pressure.

Moreover, economic downturn meant net premium growth slowed down across the board with exception of Adamjee and a couple of smaller players.

Resultantly, the total net premiums of these companies were recorded at Rs 4.8 billion, up a mere 3 percent YoY. In contrast, net claims declined by 15 percent to Rs 2.8 billion as claim ratio fell to 58 percent in 1Q2009. Claim ratio had risen to 71 percent in 1Q2008 on account of unfortunate events of Dec 27, 2007. A sharp fall in claim ratio and only a marginal (15%) increase in underwriting expenses propelled underwriting profits to jump a massive 199 percent to Rs 730 million as against Rs 247 million in 1Q2008.

Despite strong showing by the insurance business, turmoil in the equity markets has resulted in investment income remaining largely subdued, recorded at Rs 239 million, down by 79 percent YoY. However, considering the huge investment losses of Rs 4.8 billion recorded in 2008, the overall investment performance in 1Q2009 was respectable.

Farhan Rizvi, an analyst at JS Research said, “Return from equity markets, a major source of income for insurance companies, will also remain under pressure, though overall returns will be better than 2008”.

He said given low non life insurance penetration (0.3% of GDP), there remains significant long-term growth potential.