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The insurance industry's asset base is expected to expand further in CY19; however insurance sector regulator's capital requirements may lead to consolidation in the insurance industry with some insurers expected to merge or acquire smaller insurers. According to a recent report issued by the State Bank of Pakistan (SBP), the main drivers of growth include the increasing purchasing power of the middle class, the use of bancassurance, Window Takaful Operations, government's health insurance expansion initiatives, launch of micro-insurance products, etc. may help to further increase the asset base of insurance sector.

As insurance premiums and economic growth have a positive correlation, it is expected that gross premium will increase at a decelerating pace in CY19. the merger and acquisitions in the insurance sector is expected to contribute to the stability of the industry.

The Health segment premiums are expected to receive a boost as the government plans to expand its National Health Insurance Program. The program is also expected to increase the share of dominant public life insurer in the Health segment as the government will provide national-level health coverage through the public life insurer; the government has previously used the public life insurer to launch a similar program in KPK. In addition, it is expected that overall claims for the public life insurer will rise as new business is underwritten for the Health Insurance Fund, which has a claims ratio of 83.78 percent in CY18.

According to report the Despite volatility in the domestic financial markets, which has affected investment income from equity securities, the insurance sector has performed well in CY18. The asset base for the insurance sector197 has been estimated to have grown by 10.88 percent to Rs 1.435 trillion as of December 31, 2018 mainly due to an increase in the Life Insurance business. Investments and properties have registered an increase of 12.11 percent to Rs 1.128 trillion as of December 31, 2018.

The asset base of the insurance sector has expanded by 10.88 percent in CY18, funded in part by 9.45 percent increase in gross premiums. However, the profitability indictors for the sector have slid down slightly owing to increase in net claims.

Further, the concentration remains a concern as the public sector insurers dominate the insurance industry. Some non-life insurers are also facing solvency issues. These insurers need to work on viable recovery plans or pursue possible consolidation avenues.

Further potential for growth exists as the insurance penetration level in the country is less than 1 percent of GDP, which is well below the global average of 6.3 percent recorded in 2016. However, in the current macrofinancial environment, it is expected that the growth trajectory may decelerate in CY19.

In addition, the sector is exposed to concentration, market and geo-political risks; while limited domestic avenues for re-insurance can lead to exchange rate risk. The asset base for the Family Takaful segment (Full-Fledged and Window Takaful Operators (WTOs)] has expanded to Rs 42.564 billion as of December 31, 2018.

Copyright Business Recorder, 2019

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