The general insurance sector lost 20 per cent of its market value in the year through April 27 as most of the general insurers posted lower profits for 2022 due to a dent in premium income from the marine insurance segment.
The sector was the highest loser in 2022, having endured 33 per cent reduction in market capitalisation. The insurance stocks suffered immense sell pressure in 2022 after the prices more than doubled the year before, driven by speculations.
Eight out of top 10 losers were general insurance companies in 2022, with 38-56 per cent price corrections.
The losing trend continued into 2023 against the backdrop of the bearish market and the decline in quarterly profits of most of the companies.
The insurers blamed the stronger dollar, largely non-existent third-party insurance and lower earnings from the stock market investments for the deceleration of profit.
In Bangladesh, general insurance companies do business mainly in three segments -- fire, transport and marine.
The marine insurance business fell as the opening of the letters of credit (LCs) plummeted in 2022 due to the dollar shortages stemming from the Russia -Ukraine war.
Most insurance companies have significant exposure to the stock market, another reason as to why their profits dropped significantly. The market has been persistently sluggish for concerns over macroeconomic instability, dollar shortages and runaway inflation.
The benchmark index of the Dhaka Stock Exchange (DSEX) plunged 549 points or 8.14 per cent in 2022 amid the strong economic headwinds.
Of the 42 non-life insurance companies listed on the Dhaka Stock Exchange (DSE), 24 have published their annual earnings for 2022 as of Thursday.
Of them, 15 posted lower profits compared to the year before. The rest posted a marginal growth in profit.
"Overall, business activities in the country slowed down because of the ongoing global crisis that impacted the insurance sector as well," said Sheikh Kabir Hossain, president of the Bangladesh Insurance Association.
Export and import businesses have dwindled. While exports have not grown as expected for the subdued demand in the destination countries, the government had to tighten rules for imports to protect the depleting foreign exchange reserves.
The overall LC opening has dropped more than 23 per cent year-on-year to $45.52 billion in the eight months through February this year, according to the Bangladesh Bank.
The marine insurance business registered declines in the last three quarters of 2022.
"The drop in LC opening affected the insurance companies' overall profitability," said Mr Hossain.
For example, Paramount Insurance's profit slumped 38 per cent year-on-year to Tk 76 million in 2022.
Company secretary Zharna Parul said the fall in marine insurance income was the main factor behind the plunge in profit. She also cited low return from stock market investments.
"Almost all companies faced a similar situation as the overall LC opening dropped due to the costlier US dollar."
The non-existent third-party insurance for vehicles also impacted their business growth, Ms Parul said.
Consequently, Paramount Insurance slid 33 per cent to Tk 38.40 on the DSE in the year to Thursday.
Third-party insurance is a policy purchased by the insured from the insurer for the protection against claims by a third party. But in Bangladesh, no one buys third-party insurance products since it is not mandatory.
Green Delta Insurance registered the highest profit of Tk 731 million among the listed general insurers. However, its profit fell 13 per cent year-on-year in 2022.
It was followed by Reliance Insurance that secured Tk 616 million in profit and Pioneer Insurance with a profit of Tk 516 million in 2022.
Reliance Insurance posted a record high profit in 2022, despite a challenging year, backed by higher gross premium income.
It has succeeded in achieving 10 percent profit growth by boosting underwriting business, said Badal Chandra Rajbangshi, chief financial officer of Reliance Insurance.
Phoenix Insurance's profit fell 8.43 per cent to Tk 81.50 million in 2022.
Profit dropped as dividend income and other incomes went down in 2022 compared to the previous year, said Md Rafiqur Rahman, company secretary of Phoenix Insurance.
He also pointed out low interest income from fixed deposit receipts.
Central Insurance witnessed a 16 per cent year-on-year drop in profit to Tk 108 million in 2022.
Company secretary Md Jafar Ali said profit had fallen due to a decrease in gross premium income and lower earnings from the maritime business segment.
© 2024 - All Rights with The Financial Express
