Growth of Non-life Insurance sector after the earthquake; Surpasses life insurance sector's growth in 5 major indicators

In the recent study regarding the growth of life insurance companies, we found that the devastating earthquake was indeed a turning point for the life insurance companies of Nepal. Other studies have shown that the growth in non-life insurance sector is even more significant than that of life insurance sector.

Therefore, in order to find the truth, we’ve done similar study for the General Insurance Sector of Nepal. We’ll look at the major growth indicators from FY 2071/72 till the second quarter of FY 2075/76. These indicators are:

1. Paid-up capital
2. Reserve and Surplus
3. Insurance Fund
4. Net profit
5. Net premium
6. Income from investment
7. Number of policies
8. 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.

Paid-up capital

Apart from the earthquake, the insurance companies also had to face the pressure of increasing the minimum paid-up capital. Beema Samiti, the regulatory body of Insurance sector in Nepal, issued a directive whereby the General Insurance companies’ minimum paid-up capital requirement was raised to Rs 1 arba from Rs 25 crore.

Although the deadline has passed, only four companies have met the requirement, while the rest are on their way. Their capital plan is view here.

The average growth rate of paid-up capital of the general insurance companies after the earthquake stands at 37%. Since, 11 companies are yet to meet the requirement we can expect further growth in paid-up capital. (EIC 105% and IGI 80% is already over. Whereas, NICL 65% is ongoing. With this IGI paid up would be 97.2 crore and of NICL more than 1 arba)

Reserve and Surplus

Reserve and surplus is a major factor that influences a long-term investors investment decision in any company. Larger reserve size creates buffer for risks and protects against unforeseen losses.

As seen in the table above, the growth in reserves and surplus in quite inconsistent. One of the reason is, when the minimum capital requirement was raised many companies opted towards huge bonus shares instead of retaining. Therefore, once the paid-up capital is met the companies might start expanding their reserves and surplus.

Insurance Fund

The insurance fund is a fund collected as a premium from its customers. The growth in Insurance Fund indicates increment in their business as well.

As seen in the table above, the growth from FY 2071/72 to FY 2072/73 is very substantial standing at 70.56%. This shows a drastic rise right after the earthquake. In the subsequent years, the growth is not as high, but it is growing in considerable rate.

Net profit

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.

As seen in the table above, the general insurance sector has experienced average growth of 32.80% in a period of 3 years post the earthquake. This is a considerable growth considering the industry average.

Net premium

The net premium is the amount collected by the insurance companies from the policy holders in return for their risk coverage. The rise in net premium indicates a rise in the business too.

From the table above, we can see that the net premium collected has grown by an average rate of 25.93%.

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. The average growth rate stands at 15.42%, where the individual growth rates are in increasing trend each year.

Number of policies

Similarly, the total number of policies sold by the insurance companies are also increasing, which indicates a gradual market expansion. The number of policies sold is one of the most important indicators as it shows the exact number of people reached by the insurance companies.

Now that the market in city areas is satiated, the companies have no choice but to expand and reach out to all parts of the country. Geographical expansion can be a strategic advantage or increased marginal cost per policy sold; it entirely depends on what sort of strategy the company will devise and implement.

The table above shows the total number of policies sold by 15 general insurance companies in Nepal. The average growth rate for past three years stands at 26.82%.

Insurance claim payment (Net)

The insurance claim payment is the amount paid to the insurers as claims. The policy holders pay premium for the uncertainty of future and if the stated event occurs, then the insurance company is liable to pay compensation to the policy holders as per the agreement.

The table above shows that the Claim paid has increased by 24.86% in average.

Conclusion

The table below shows the growth of Life and General Insurance sector in a nutshell. Over the years after the earthquake, we can see significant growth in most of the major indicators.

The growth till now is good and given the virginity of Nepal's Insurance market, the growth potential for coming days is even higher. There is still a huge gap between those who need insurance and those who have access to it.