Investors' increased appetite for insurance stocks beyond belief

Most non-life insurers made double-digit price gains in last 15 sessions

MOHAMMAD MUFAZZAL | Monday, 22 May 2023

Most insurers, especially non-life ones, have been flying on the Dhaka Stock Exchange for the last 15 trading sessions, achieving double digit price gains.
The rally happened because of, insiders say, a rumour that motor vehicle insurance would be made compulsory. Investors felt encouraged to put bets on the insurance companies in anticipation of good returns.
The share price of 10 companies advanced between 20 per cent and 44 per cent while 18 others experienced price hikes at 10-19 per cent in the 15 sessions to Sunday.
Over the last week, the sector played a pivotal role in boosting the market turnover and driving up the broad index of the premier bourse.
Insurers dominated the last week's chart of top 10 gainers too, with price appreciation by 19.53- 60 per cent on the DSE.
The companies include Meghna Insurance Company, Paramount Insurance Company, Global Insurance Company, Rupali Life Insurance Company, and Islami Insurance BD.
But the sudden jump in the stock prices is not backed up by the companies' earnings.
For example, Meghna Insurance Company and Islami Insurance BD reported a year-on-year decline in income in the latest quarter through March this year.
Meghna Insurance remained stuck at the floor price of Tk 29.90 until May 11. The following day, the company moved up from the floor.
The stock soared 44 per cent in just five sessions executed last week.
Paramount Insurance Company and Global Insurance Company also escalated during the same period.
In case of abnormal price surges, the stock exchanges make queries to know if there was any reason behind them.
However, there was no disclosure of any price-sensitive information that could trigger the rally.
"Such hikes cannot be justified based on the companies' earnings that were mixed. It can also be termed as sector reshuffling," said Ahsanur Rahman, chief executive officer of BRAC EPL Stock Brokerage.
To explain what he meant by sector reshuffling, Mr. Rahman said investor participation had earlier been high in some sectors, such as food and travel, and recently investors became interested in insurers.
"It happens in the absence of any significant movement in the majority of sectors.
"Sometimes the price of a company jumps amid the price hikes observed by pair ones," Mr. Rahman added.
The insurance sector as a whole has historical records of large swings without any reason.
In the first half of 2019, the share prices of some insurers soared up to 340 per cent within two months despite the fact that there was no significant positive earnings disclosure.
That same year a few insurers exhibited abnormal price hikes at a time when other sectors endured price corrections. That was again repeated in January last year.
No fundamental changes took place, which could push the stock prices up in any of the rallies mention above.
Experts insist that small-cap companies are susceptible to price swings driven by speculation.
Among insurers, Trust Islami Life Insurance made its debut trading on May 11. That day the company closed at Tk 11 on the DSE.
In the five sessions to Thursday, Trust Islami Life Insurance leapt by 60 per cent.
On the price rises of non-life insurance companies, insiders say a recent discussion on policy formulation for mandatory motor insurance inspired investors to put their money into the securities.
On May 12, the Insurance Development & Regulatory Authority (IDRA) asked all non-life insurers to submit their schemes for motor insurance based on demand.
Previously, there were two types of motor insurance. One was mandatory third-party insurance. The other one was optional comprehensive insurance providing coverage for damaged cars and lives and goods of third party.
The implementation of mandatory motor insurance requires changes in relevant laws and approval of authorities, such as Roads, Transport and Highways Division.
Such policy-level changes take time as the existing road transport act does not require the insurance coverage.
The stock market responds to any event in advance and sometimes in anticipation, said Md. Moniruzzaman, managing director of Prime Bank Securities.
"Many people act on rumours which are sometimes materialised and sometimes [they] do not see the daylight."

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