General insurance business in Pakistan depicts an oligopolistic composition with 10 companies accounting for almost 83 percent of the total private sector general insurance business. The total gross direct premium underwritten by general insurance companies, excluding the state-owned NICL, during the calendar year 2001 was Rs. 10.9 billion. Of this amount, Rs. 9.1 billion was attributable to the 10 largest companies while remaining gross direct premium of Rs. 1.8 billion was underwritten by the remaining 41 companies. Premium underwritten by NICL for the year ended December 31, 2001 amounted to Rs. 2.3 billion.
In Pakistan, general insurance companies underwrite four main classes of business, i.e., fire, marine, motor and miscellaneous. The premium earned by general insurance companies in each class of business during the year ended December 31, 2001 is presented in the table below.
Paid-up
Capital and Gross Premium of General Insurance Companies
(January 1, 2001 – December 31, 2001)
Under the Insurance Ordinance, 2000, general insurance companies are required to raise their paid-up capital to Rs. 50 million by December 31, 2002 and, subsequently, to Rs. 80 million by December 31, 2004, failing which the companies would not be permitted to continue their operations. The minimum paid-up capital requirement under the repealed Insurance Act was Rs. 1.5 million. The enhanced capital requirement is likely to usher in consolidation in the insurance sector, as under-capitalized companies would either have to merge together to meet the regulatory requirement or opt for an orderly exit. At present, a few cases of mergers and acquisition are in process. Consolidation through mergers and acquisition is expected to result in fewer but financially stronger insurance companies, which will have better Claims Paying Ability (CPA) and higher solvency margins.