Stocks’ bull run fails to bring cheer to insurers

Insurance stocks surged throughout the 2020. But now figures show that insurance companies did not have good business as their premium income fell for the first time in at least 12 years.

The stock prices of non-life insurance companies that usually help hedge the risk of losses from damage and accidents of goods and assets rose over 95 per cent on average throughout 2020.

However, data released by the Insurance Development and Regulatory Authority (IDRA) showed that premium incomes of non-life insurers decreased 7.46 per cent year-on-year to Tk 4,366 crore last year.

And the premium incomes of life and non-life insurers as a whole fell 3.46 per cent year-on-year to Tk 13,821 crore.

Industry insiders blamed the slump in domestic and global business and a halt in economic activities amid the Covid-19 pandemic for the decline in the premium income.

“The insurance stocks rose mainly because of market manipulation,” said Prof Mohammad Musa, dean of the School of Business and Economics at the United International University.

Some insurers’ directors bought shares as they were not holding 30 per cent shares in their companies jointly. But this cannot be the reason for such price hike, Musa said, adding that the insurance sector was manipulated at the end of last year.

When gamblers play with the shares of a particular sector in an organised manner, they buy shares first and then spread rumours that the stocks of that sector will gain, said Musa, who had several publications on the capital market.

“Ultimately, it is the small investors who incur losses. Buying shares without doing any analysis or being influenced by speculation is nothing but a foolish way to invest.”

Some 79 insurance companies are now active in the country. Of them, 49 are listed with the stock exchanges.

The insurers’ premiums were hit hard by the Covid-19 outbreak, said Farzanah Chowdhury, managing director and CEO of Green Delta Insurance, one of the leading general insurance companies.

In 2020, export-import had been sluggish, and the demand for marine insurance fell, while the re-insurance for motor vehicles also dropped, she said.

The latest directive by the Bangladesh Road Transport Authority cancelled the mandatory third-party insurance for motor vehicles, and it affected the regular income of non-life insurance companies.

She said the market for insurance was recovering slowly.

“The positive thing is our profit margin is growing thanks to widespread digitalisation in the sector.”

Despite a decline in the premium incomes, three insurers were on the DSE’s top five gainers’ list in 2020.

Asia Insurance rose 344 per cent year-on-year, Paramount Insurance surged 227 per cent, and Provati Insurance went up by 217 per cent last year, according to data compiled by IDLC Investments.

A stockbroker, preferring anonymity, said the insurance stocks were manipulated with the speculation that the profits of insurance companies would rise as more companies are now complying with the regulatory directive to keep agents’ commission within the limit of 15 per cent.

The IDRA issued a circular in 2010 prohibiting insurance companies from paying more than 15 per cent of the premiums as agent commission.

Since most of the insurers disregarded the directive, the IDRA issued another notice in late 2019, asking the companies to comply with the rule for the sake of the sector.

In the past, many insurers offered as much as 60 per cent of the premium as commissions in a bid to grab businesses from relatively small markets having a lot of players.

At a meeting at the Bangladesh Insurance Association in 2019, insurance companies collectively agreed to comply with the IDRA directive for the sustainability and growth of the sector.

“But that does not mean that the prices of these stocks deserve to double amid the pandemic,” the broker said.