Listed general insurers have bagged higher profits in the first half (H1) of 2021 thanks to lowering agents commission, reduced net claim and reduction in operational costs.
A total of 38 general insurance companies are listed with the Dhaka Stock Exchange (DSE). Of them, 20 have published their half yearly financial statements for January-June, 2021 as of Sunday.
Earnings per share (EPS) of 18 companies or 90 per cent general insurers rose while two saw their EPS fall year-on-year in the first six months of 2021, according to un-audited financial statements.
EPS is the portion of a company's profit allocated to each share. In short, it serves as an indicator of a company's profitability.
Most insurers have reported higher profits due to reduction of agents' commission, management and other costs and lower claims, said a managing director of a leading insurance company, requesting anonymity.
Paramount Insurance's EPS jumped 892 per cent, the highest among the listed general insurance companies, to Tk 2.58 for January-June, 2021, from Tk 0.26 in the same period of the previous year.
Prime Insurance has returned to profit as its EPS stood at Tk 0.75 for January-June, 2021, as against loss of Tk 0.31 per share in the same period of the previous year.
The regulatory step to lowering agents' commission to 15 per cent and bullish capital market were main reasons behind the boost in profits, a top official of the company said.
In 2012, the Insurance Development and Regulatory Authority (IDRA) issued a circular barring insurance company from paying more than 15 per cent of the premium as commission to their agents.
However, most insurers disregarded the directive, prompting the regulator to issue a notice in late 2019 instructing them to comply for the sake of the sector's welfare.
Earlier, many insurers offered as high as 60 per cent of the premium as commission to secure business, which hurt profits of the insurers, he said.
Insurance companies also made profits from the stock market investment as the index of the market was bullish during the period under review, he said.
DSEX, the prime index of the DSE, rose 532 points or 9.46 per cent in the first six months between the January and June, 2021.
Thanks to the buoyancy in profits, stock investors were lured into buying the stocks of the insurers, said a merchant banker.
All insurance stocks rose in the last one year, and many even doubled or triple, DSE data showed.
Speculation about the insurance sector also fueled the stock price, the merchant banker said, adding that many insurance stocks are still trading at overvalued prices.
He noted that the general insurers' profit rose, but their stocks prices hike do not match their profit growth. So investors need to be cautious on overvalued insurance stocks, he added.