How have the non-life insurance companies grown over the period of 5 years; See the compounded growth rate for major indicators

Tue, Jun 25, 2019 2:37 PM on Exclusive, Latest, Recommended, Stock Market,

The Insurance Industry of Nepal has gone through quite a phase and has grown significantly. Even inside the Insurance sector, the non-life insurance sector has reported more growth than the life insurance sector. The non-life insurance companies have more avenues to play in and more chances at bringing new and innovative products.

The growth of non-life insurance sector jumped after the third party insurance of vehicles was made mandatory by the government. Apart from that, we can see that the companies are becoming more and more innovative in the recent period. Some have entered the agricultural sector offering crops and harvest insurance. Similarly, many have partnered with banks to provide their depositors health and accident insurance and so on.

Thus, in this back-drop we will now be assessing the growth of Non-life insurance sector in terms of four major indicators in a period of five years from the third quarter of FY 2070/71 to ongoing year third quarterly report.

*In case of IME General Insurance (IGI), it was NB Insurance back then and was declared as problematic. The company hadn't published any report for FY 2070/71 and therefore for the sake of comparison, the data for IGI has been taken from the third quarter of FY 2069/70.

RESERVES AND SURPLUS

In terms of compounded annual growth, the reserves and surplus of Non-life insurance sector has grown by 37.54%. The average reserve fund stood at Rs 9.2 crore for 2070/71 and in five years it has grown by 392% to Rs 45.4 crore.

Among the 15 listed companies, Rastriya Beema Company Limited (RBCL) has reported the highest rise of 1,382%, with reserves at Rs 2.36 arba today. However, the company is yet to meet its capital mark yet and given such huge reserves, the investors are expecting a huge bonus dividend anytime soon.

Similarly at the lower end we can see Everest Insurance with a negative CAGR of 0.94%. The company had issued 105% and 300% right shares in order to meet the capital requirement and in the review period it has distributed a total of 30% bonus dividend to its shareholders.

*Data taken from SSpro.

INSURANCE FUND

The average insurance fund of general insurance sector of Nepal has experience a CAGR of 32% in a course of five years. The Insurance fund has increased from Rs 14.4 crore by 303% to Rs 58.3 crore as of Q3 FY 2075/76.

The top of the list is occupied by IME General Insurance with a CAGR of 151%. The data for IGI, as mentioned above, has been taken from FY 2069/70. After that time, the company was declared problematic, it had change of ownership and change of name and got revived. Therefore, in case of IGI, the fund surely has grown but the huge growth that calculation shows may not be fully reliable.

The second in line is Neco Insurance with a CAGR of 47%, followed closely by United Insurance at 46%. Likewise at the lower end of the list is Rastriya Beema Company with least growth rate among all.

Reserves & surplus and Insurance fund are two important fund pool for insurance companies. The strength of foundation in case of banks can be seen from the size of reserves, however in case of Insurance companies, it is seen from the combined strength of reserves and insurance fund.

In case of RBCL, it has experienced the highest reserve growth but the lowest Insurance fund growth and both has to be considered for proper assessment.

*Data taken from SSpro.

NET PREMIUM

The general insurance sector has experienced 17.7% compounded annual growth in average net premium over the review period of 5 years. The amount has grown from Rs 22.8 crores to Rs 51.6 crores by 125%.

Among the 15 companies, Everest Insurance has reported the highest CAGR of 63.8% followed by IME General Insurance and Neco Insurance as you can see in the list.

Similarly, from bottom up, Prudential Insurance has seen a fall of 8% in 5 years, with compounded annual fall of 1.7%. Likewise, the CAGR of Nepal Insurance Company and Himalayan general insurance are well below the average.

*Data taken from SSpro.

NET PROFIT

The average net profit of general insurance companies has grown from Rs 6.4 crore to Rs 18.1 crore in five years by 179%. Similarly, the compounded annual growth rate stands at 22%.

In the review period, Neco Insurance has reported the highest growth of 495%. Its net profit has increased to Rs 25 crore from Rs 4.2 crore by CAGR of 42%. Similarly, Everest Insurance has the lowest growth in net profit and the figure has grown by only 6% in 5 years.

*Data taken from SSpro.

INDUSTRY AVERAGE SUMMARY

The table below summarizes the industry average for each of the indicator discussed above. In the review period, the non-life insurance sector has seen highest growth in the reserves and surplus and then Insurance fund, net profit and net premiums finally.

*Data taken from SSpro.