- An Analysis
In 1992 the Government of Pakistan opened up life insurance to the private sector, issuing licences to three Pakistani companies - EFU Life, Metropolitan Life and New Jubilee Life. The first two companies commenced business towards the end of 1992 while New Jubilee has yet to enter the market, perhaps having reconsidered its initial plans for commencing life business. The caretaker government of Mr. Moin Qureshi took the major policy (and somewhat controversial) decision of opening up Pakistan's life insurance market to foreign insurance companies in 1993, allowing American Life (ALICO) into Pakistan. ALICO commenced business in mid-1995. The barrier to foreign investors in insurance having been broken, Commercial Union Life followed a year later, commencing business in mid-1996.
The financial statements for 1997 of all four new entrants to the life insurance market have now been published. It is an opportune time, therefore, to look at the relative performance of the four companies given that these results reflect at least one full year of operations of even the newest entrant, CU Life.
Table-I sets out, in comparative form, the Revenue Accounts of the four companies, restated to an extent for comparison purposes.
One major impediment in comparing these accounts is the method used by the different companies with regard to the treatment of liabilities against life insurance policies. EFU Life (which set the lead) and Commercial Union Life have set up full actuarial reserves from the very first year of their 'respective operations. This approach is to be commended as it results in the best determination of the companies profitability. Metropolitan Life set up full actuarial reserves for the first time in 1997 and therefore declared a loss for the year of Rs.46 million. This is obviously the accumulated loss as, until 1996, Metropolitan simply showed the net result of income and revenue in the Revenue account as the fund at the end of the year, even if this figure was negative. ALICO has also, unfortunately, chosen the latter route. Even the financial statements for 1997 of ALICO show a negative life fund, although a hint at the actuarial reserves is given in the notes to the accounts which indicate that. reserves of Rs.28.622 million should have been set up as at end 1997. This would indicate a "true" net accumulated deficit in the Profit and Loss Account of Rs.58.1 million and not the Rs.29.4 million shown. It is of concern that these two companies have been allowed by the Department of Insurance and Ministry of Commerce to follow this basis of accounting. Even Metropolitan Life's change of accounting basis is apparently a result of the appointment of more professional actuaries rather than as a result of any pressure from the controller. Some key indicators have been worked out from the above results, which are given in Table-II.
Again there are difficulties in comparisons in that all the financial statements do not give, for example, gross premiums or claims, commissions and expenses separately for group and individual life business.
Ignoring minor inconsistencies, the picture which emerges indicates that EFU Life is emerging as a clear market leader among the private sector companies, writing 60% of total premiums (57% of new individual life premiums and 63% of group life premiums). The company has also made a clear dent in the overall group life market, writing close to 9% of premiums. It's entry in end 1992 brought about the first real competition to State Life which has resulted in sharp falls in group life premium levels to the benefit of insured organisations. Although EFU Life has not really made any significant impression in State Life's individual life business, it is obviously building up a steady portfolio of individual life clients which are the base of any life company's long-term profitability. …