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How closely are Insurance Index & premium of non-life insurance companies related?

- ShareSansar, April 5, 2017  on Exclusive , Featured , Latest , Stock Market
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Lately, the capital expansion plan of insurance companies has attracted a lot of investors, resulting in a price surge. The Insurance index rose by almost a thousand points just within few days of this news. However, Insurance index is affected by a lot of other parameters. One among those parameters is the performance of the insurance companies.

Premium collection indicates how well the company performs. The increase in premium collection signifies a business growth of a company. Higher the premium collection, higher the company’s profit. This ultimately affects the company’s price in the secondary market, which then influences the Insurance sub-index and NEPSE Index.

relation1

If we go back to the past and analyze the history, the increase in premium collection of non-life insurance companies has directly influenced the Insurance sub-index. As per the recent data of 2nd quarter 2073/74, the gross premium collection of non-life insurance Industry surged by 46% whereas the Insurance sub-index grew by 28%. Similarly, as per the 4th quarter data 2072/73, when the premium rose by 27%, the Insurance Index increased by 110%. There is a positive correlation of 90% which indicates direct relation between the Premium collection and Insurance Sub-Index. 

4th quarter 2072/734th quarter 2071/724th quarter 2070/71
Premium Collection (in lakhs)9,0737,1376,159
Insurance Index8,7224,1474,383
Nepse Index1,7189511,036

rel2

2nd quarter 2073/742nd quarter 2072/732nd quarter 2071/722nd quarter 2070/71
Premium Collection (in lakhs)5,5383,7863,6293,129
Insurance Index6,8905,3754,1392,238
Nepse Index1,4771,190940795

Especially after the earthquake of 2072, people have understood the importance of insurance, which has brought a significant growth in the premium collection. The Insurance stocks have since become hot stocks for the investors. As the industry is growing and has a wider scope–both in terms of consumers and returns for investors, the industry and Insurance Index has more room to grow.

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