Tue, Mar 12, 2019 12:55 PM
The devastating earthquake is the greatest tragedy of the decade for Nepali Economy till now, however it played out differently for one sector – Insurance Sector. Prior to earthquake, the Nepali community perceived Insurance as luxury rather than a necessity for future protection. But post the earthquake, this mind-set took a turn and well, rest is history.
The life insurance sector has surely grown, but what we are going to analyze here is by how much. So, for this purpose, we’ll look at the major growth indicators from FY 2070/71 till the second quarter of FY 2075/76. These indicators are:
- Paid-up capital
- Reserve and Surplus
- Insurance Fund
- Net profit
- Net premium
- Reinsurance Income
- Income from investment
- Number of policies
- Claim payment (net)
Now, we’ll see the growth trend in each of these indicators, where we take 2072 (the year of devastating earthquake) as the turning point for the insurance companies.
The year 2072 is marked by two important events. One, the earthquake and two, the hike in minimum capital requirement. Along with the banks’ rise in minimum paid-up capital requirement, Beema Samiti also hiked the minimum requirement of paid-up capital for Life insurance companies from Rs 50 crore to Rs 2 arba and the deadline was set on Ashad 2075.
Although the deadline has passed, only two companies have met the requirement, while the rest are on their way. Their capital plan is view here.
The bottom column of the above table shows that growth rate of the life insurance sectors’ paid-up capital. After the earthquake, the capital has grown by 11%, 29% and 46% consecutively for 3 years. However, this growth might be the result of regulatory requirement rather than the market expansion of insurance products.
Reserve and Surplus
The thickness of the cushion a company has in order to sustain risks is given by paid-up capital and its reserve and surplus balance. The paid-up capital is mandated by the regulatory body, but the reserve and surplus isn’t.
Therefore, higher reserves and surplus indicates higher growth prospects. Nepal was hit by earthquake on Baisakh 2072 and for the next two years the industry’s reserve and surplus has grown by 30% and 233% respectively followed by a decline of 11%.
Similarly, for this fiscal year only two quarters have passed and the figures for reserves and surplus is already higher than last years’. FY 2073/74 has seen a drastic increment in the reserves and surplus, which as we can see, has been influenced by the drastic rise in the reserves of NLIC. NLIC’s reserves grew tremendously this year because of the premium amount they earned by issuing Further Public Offering (FPO).
Life insurance Fund
In case of Insurance companies, the insurance fund plays an even more important role than the paid-up capital. It is a fund collected as a premium from its customers, which means higher the life insurance fund higher is their business.
Since, the insurance business has grown post the earthquake, the increased business also indicates increased risks. Thus, to manage that the insurance fund will also have to increase accordingly.
As seen in the table above, the industry’s insurance fund has grown to Rs 1.4 kharba in FY 2074/75 which is more than twice the size of FY 2071/72. Such growth in three years’ time is a considerable growth rate.
Net profit and loss
The profit is always the first thing we’d like to know when we think of investing in a company or doing business with it and therefore, it is one of the most sought-after indicators. If the business has grown, then it sure will be reflected in its net profit.
However based on the available data, enough inferences can’t be made. The highlighted values are the audited figures as published in the annual report of the companies. However none of the companies have published their reports for FY 2074/75 yet and 2075/76 is ongoing. LICN and NLICL haven’t published their 2073/74 reports too. In order to evaluate the net profit we need the audited figures because the unaudited figures don’t include income from actuary valuations.
The net profit has risen by 62% in the first year after the earthquake. So after the actuary valuations are made and the audited balance sheet will give more perspective.
The net premium is the amount collected by insurance companies from the policy holders in turn for their risk coverage.
From the table above, we can see that the net premium collected has also increased substantially. The growth rates are 25%, 22% and 28% for the three years respectively.
Income from investment, loans & others
Insurance companies, apart from collection through net premium, also relies on Income from investment, loans and others for generating revenue and profit.
As seen in the table above, the Income from investment, loans and others of the life insurance sector is in a rising trend. From FY 2071/72 to FY 2075/76, the overall amount has grown by around 2.8 times.
Number of policies
Similarly, the total number of policies of the life insurance companies are also increasing. This indicates a gradual market expansion. However, it is hard to figure out if this expansion is concentrated in few big cities or has reached all parts of the country.
The table above shows the total number of policies sold by 7 life insurance companies in Nepal. This figure has shown consistent growth, where the rates are varying.
Insurance claim payment (net)
The insurance claim payment is the amount paid to the insurers as claims. The below table shows the claim amounts from FY 2070/71 onwards.
The claims have increased consistently each year and the average growth rate stands at 49%.
Thus, we can infer we confidence that the life insurance sector has grown post the devastating earthquake. All the major indicators except for the reinsurance commission income are increasing gradually point towards increasing market outreach.
The market coverage of the insurance sector is still very less and concentrated to cities, so this indicates huge prospects in the coming days.