THE American Life Insurance Company Pakistan was bought over by a local general insurance company, IGI, last week.

But considering that the total policy holders in Alico stood at no more than 25,000, people associated with the industry yawned at the transaction saying that it scarcely created a ripple.

But the event did bring into focus the usually low-profile `life insurance companies` The life insurance business is still in its nascent state with a total of nine life insurance companies including the giant State Life Insurance Company of Pakistan (SLIC) in the public sector. Among the eight companies in private sector, two are Takaful operators. The overall insurance penetration, measured by ratio of premium to GDP stands at a low 0.35 per cent, which pales in the faceor even the regional peers uke India with penetration of as high at four per cent.

According to industry experts, the general insurance sector was ahead of life insurance until the middle of 2009. Non life insurance density (in rupees) amounted to Rs318 in 2008 and took only a step forward to Rs319 in 2011. On the other hand, life insurance density soared from Rs254 in 2009 to Rs372 in 2011. Most people in the industry suggest that the deteriorating law and order situation, which has put lives in peril ought to be the major reason that has sent people running to seek the safety of life insurance.

The Securities and Exchange Commission of Pakistan regu-lates and monitors the insurance Business. The Commissioner Insurance Division, SE CP, Mohammed Asif Arif when asked about the IGIAlico acquisition deal said that it wasn`t an extra ordinary event as the company had already changed hands several times since its inception.

He provided some statistics which shows that the growth of life insurance industry was 30 per cent in 2011, up from 27 per cent the earlier year.

Total premium of life insurance industry stood at Rs70 billion at the end of 2011, comprising SLIC share of Rs45 billion and the share of the rest of theprivate life insurance companies combined at Rs25 billion.

The risk underwritten by life insurance companies is mainly death. One major company in the field carries with its logo the slogan `zaroori hai` (it is essential). Yet in a Muslim-majority country like Pakistan, where religion takes precedence over other concerns, many people still consider life insurance as an `un-Islamic` act. It is to address such concerns that SECP launched new Takaful Rules. Takaful is understood to be the Islamic alternative of insurance. It is a scheme based on the principles of mutual assistance in compliance with the provisions of Islamic Shariah.

The Chairman SLIC Shahid Aziz Siddique told Dawn that the market share of his company was about 71 per cent of the industry. He said that in the last four-five years, the company had shown consistent growth.. He observed that the combined annual growth rate (CAGR) in the last five years stands out at 24.5 per cent; thenumber of individual policy holders have risen from 3.8 million in 2011 to 4.4 million in 2012; investment portfolio was Rs275 billion, which included investment in real estate at the book value of Rs2.5 billion and fair market value of Rs21.6 billion.

SLIC distributes 97.5 per cent of the actual surplus to policy holders. `In accordance with the Insurance Ordinance 2000, private companies have to distribute 90 per cent of their profit to policy holders`, said Siddique.

He did not subscribe to the view that savings in life insurance evaporated over time due to inflation and arguedthat SLIC was providing policyholders a yield of 13 per cent, far higher than by some other avenues like banks.

`The stock market may be giving out a higher yield but investment in stocks, unlike life, is not risk-free`, he said. SLIC was said to be pro-active in the Takaful field and a `window` was likely to be opened by 2013.

However, the SLIC dream soured after the Takaful operators raised objection on entry of life insurance companies into the sector, fearing loss of big share of the pie. The case has been filed in the courts and a `stay order` obtained, putting a break to the progress of Takaful.

The SLIC chairman conceded that coming back into operation from 1992, private life insurance companies were offering competition, but stressed that out of the 4.3 million policy holders countrywide, 3.8 million were insured with SLIC. The reason cited was that while SLIC offered as tiny premium on policy as Rs13,500, most private companies kept their`ticket size` for bigger clients with minimum premium at around Rs20,000 per year.

Commissioner Insurance Division said that against the SLIC growth of 25 per cent, private sector companies were showing growth of 37 per cent because of their lower base. Two of those four companies in the private sector EFU and Jubilee have taken a lead with consistent flow of profit and distribution of dividends to shareholders. From a loss of Rs473 million suffered in 2008, EFU Life climbed to profit of R 578 million in 2011. Its gross premium amounted to Rs10 billion and total assets rose to Rs28 billion by end 2011.

Jubilee Life, posted similarperformance to transform loss of Rs55 million suffered three years ago in 2008 to a profit of Rs375 million earned in 2011. Premium net of reinsurance of East West amounted to Rs179 million for 2011.

As for the company in the news, Alico`s gross premium mounted to Rs3 billion and profit after tax at Rs168 million in 2011. The company carried only Rs7 billion as total assets on balance sheet. At the stock market, the shares in Jubilee and EFU Life trade at about the same price of around Rs89, evidencing heavy premium over the par value of Rs10 per share.