Business

Adamjee Insurance profit tumbles 79 per cent

AICL under-performs due to declining investment income and higher claims in core portfolio.

Express March 23, 2011

KARACHI:

Adamjee Insurance Company Limited’s net profit fell a massive 79 per cent to Rs779 million in 2010, compared with Rs2.4 billion in the preceding year.

AICL underperformed due to its declining investment income and higher claims in its core portfolio, said analysts.

The country’s largest insurance company announced a final cash dividend of Rs1.5 per share along with its results, taking the full year payout to Rs2.5 per share, according to a communiqué sent to the Karachi Stock Exchange on Tuesday.

The company’s net profit comprises two segments, core income – insurance underwriting business – and investment income.

The company’s claim expenses for ‘Fire and Property Damage’ business rose to Rs264 million as the country faced its worst floods in August 2010.

General and administrative expenses declined 11 per cent to Rs634 million against Rs710 million in 2009. However, such prudent measures taken by the company to lower operating cost of the business failed to save the net profit from declining, said BMA Capital analyst Muhammad Ali Taufiq.

Investment income pulls earnings down

Investment income has been a major source of earning for most insurance companies in the country. AICL recorded massive investment income of Rs2.48 billion during 2009 backed by sharp recovery in local equity market which resulted in reversal of provisions for impairment of Rs1.87 billion, said Taufiq. The company is expected to generate decent interest and dividend income but will be unable to realise sizeable capital gains, said Taufiq. Hence, investment income decline by 69 per cent to Rs779 million in the period under review.

Outlook

Given the economic and political uncertainty prevailing in the country, the insurance industry does not present a healthy picture, said Taufiq. The industry declined by six per cent in terms of net premium in the last year.

Published in The Express Tribune, March 23^rd, 2011.