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The Actuary The magazine of the Institute & Faculty of Actuaries

International: Pakistan uncovered

At nearly four times the size of the UK, Pakistan has a 1046km coastline along the Arabian Sea and Gulf of Oman. It is the sixth most populous country and has the second biggest Muslim population in the world, after Indonesia. Karachi, the largest city, is the main financial hub, where the head offices of most banks and insurance companies are located. Agriculture is the single largest sector and a dominant force for growth and development of the economy.

Market history
After the creation of Pakistan, 77 foreign insurance companies dominated Pakistan’s market and there were only seven local insurers. In 1952, the government established Pakistan Insurance Corporation to promote the local insurance industry; the number of local insurers increased to 60 and the number of foreign insurers reduced to seven. There are now 49 non-life insurers present in the market; two are wholly foreign-owned. There are two state-owned companies in the non-life market: National Insurance Company Ltd (NICL), which is the exclusive direct insurer of public sector risk, while Pak Re is the market’s only professional reinsurer. Adamjee Insurance Company Ltd is the leading insurer in this market with market share of around 27%.

Non-life insurance business was largely dominated by 10 insurance companies, which accounted for almost 84% of the total premium written by the sector. In 2007, the total gross premium written by non-life insurance companies totalled PKR36.2bn. In the years preceding 2008, the non-life insurance industry of Pakistan grew at an average of 17% measured by gross written premium. But growth in premium of this industry slowed down sharply (7% average growth in 2008) due to global financial crises, increased recession and turbulent economic conditions.

The penetration of non-life insurance in Pakistan squeezed to 0.3% of GDP during the year 2008. The growth in the insurance industry is directly linked with the economic activities in the country. The prevailing downturn in the economy, also coinciding with the global recession, is likely to impact the growth prospects of the insurance business. The country’s GDP growth, which remained well above 6% on average in recent years, has declined to 2.4%.

Legislation and regulatory environment
The developments in the regulatory environment in the insurance industry are in line with those in international markets and compliance with regulations is becoming increasingly important. In 2000, the government enforced the Insurance Ordinance 2000 and repealed the Insurance Act 1938. This new ordinance aims to protect the interests of the policyholders and to develop the insurance market by raising capitalisation standards and strengthening the solvency of insurers.

The Insurance Department of the Securities and Exchange Commission of Pakistan (SECP) is the regulatory body for insurance. This department is responsible for the supervision, development and regulation of the insurance sector including life and non-life insurers, Takaful operators, insurance brokers and bodies connected with insurance such as the Insurance Association of Pakistan.

Emergence of Takaful insurance
Almost 97% of Pakistan’s population is Muslim and the reason behind the low insurance penetration rate in this country is that insurance is regarded as unethical (haram) from a religious point of view by a large segment of people. Therefore, the government of Pakistan has been actively involved in promoting Islamic Insurance (Takaful) over the last few years. The SECP introduced Takaful rules in 2005 to regulate operations of Takaful insurance companies; the act also allows conventional insurance companies to transform into Takaful-based companies.

Initially, Pakistan was slow to respond to the global Takaful trend but, within a brief period, five Takaful companies (two general and three family) were established, and more companies are scheduled to enter the market in the near future. Foreign investors, particularly from Gulf countries, are heavily investing in Pakistan’s Takaful industry. Actuaries in Pakistan are increasingly in demand from Takaful companies to employ their analytical skills to this new industry.

Actuarial profession in Pakistan
The actuarial community is very small due to lack of knowledge and awareness about the profession and its scope. There are about 40 qualified and 70 student actuaries. Major areas of work are life insurance (including consultancy) and pension consultancy. Recently actuaries have also been employed by non-life insurers, banks, investment management companies and the government (Ministry of Finance and SECP). The insurance market has the capacity for at least 200 actuaries. Pakistani actuaries are also working in the Middle East market.

Ahsan Jamal is a manager in the risk management department at Adamjee Insurance Company, Pakistan and a student of the Institute of Actuaries, UK.

1 Securities and Exchange Commission of Pakistan (SECP) www.secp.org.pk
2 Pakistan Society of Actuaries (PSOA) www.psoa.org.pk
3 Pakistan: Non-Life (P&C) Insurance Market Report by AXCO, 2008
4 Insurance Association of Pakistan (IAP) www.iap.net.pk
5 Government of Pakistan official website www.pakistan.gov.pk