Shamsul Huq Zahid
Each of the life insurance companies, listed on the country's bourses is, apparently, a gold mine. If not the fundamentals, their stock prices would indicate so.
The priciest stock on the bourses at the moment belongs to a life insurer, named, the Delta Life Insurance Company and other insurers should be proud of the achievement of one of their fellow members!
The quoted price of each of the Delta life shares at the Dhaka Stock Exchange was Tk. 25380 yesterday (Tuesday) and the price went up by Tk. 600 on the day.
The third priciest stock on DSE does also belong to this insurance sub-sector. The National Life was quoted at nearly Tk. 10000. Its stock prices also went up by Tk 600 each yesterday. The price of the National Life stock is likely to maintain an up-trend for some more days as one of its sponsor-directors did reportedly place a spot market order last Monday to buy 112,000 shares of the company at current market prices. This particular buy order would involve more than Tk. 1.12 billion, at current market price of each of its share.
The lowest price of an insurance stock on the bourses is now Tk.2400.
Strangely enough, the available indicators do have no earthly reason for the investors to become all too crazy about transacting life insurance stocks at such high prices.
The Delta Life is otherwise a 'Z' category share as it could not hold annual general meetings for the last five years because of legal complexities. Besides, its net asset value (NAV) is about Tk. 1900 each share, according to the latest Business Information Automation Service Line (BIASL) statistics. The current price- earning (P/E) ratio of the company is above 64.
The price of each share of the Progressive Life Insurance with a net asset value of Tk. 121 is being quoted at nearly Taka 2500. The company's P/E is 209. The Sandhani Life with an estimated net asset value of Tk. 952 per share is being quoted at over Tk 4000 on DSE. The P/E of the company is 94. The Meghna Life has the lowest PE (36.2) among the life insurance companies.
A section of investors are more prone to believing rumours than going by the fundamentals of the companies. The decision of the government to raise the paid-up capital to Tk. 300 million has played a part in generating extra enthusiasm among investors about life insurance stocks. In the case of Delta Life, the accumulated dividends for the last five years are thought to be responsible for skyrocketing its share prices.
The financial performance of life insurance business is, generally, measured by the surplus generated through the gap between the valuation of liabilities and life fund. The growth of surplus of the life insurance companies has not been anything spectacular. The old companies have recoded a moderate growth in recent years while that in the case of new companies was marginal.
The operating efficiency, which is dependent to a large extent on the control of management expenses, growth of life fund and investment of surplus in assets, is yet not up to the desired level. The average operating expenses of the life insurers are still high and the situation is more unfavourable in the case of new entrants to the sector. What has been disconcerting is the high rate of discontinuation of policies by the policyholders.
For meeting the paid-up requirement under the new insurance law, the companies, obviously, would raise funds through the issuance of right shares and the investors are eagerly waiting for that. But those shares would only add to the liabilities of the companies concerned. Unless and until, the insurance companies can rein in their management expenses and the high rate of policy discontinuation and improve the managerial efficiency by hiring competent professional hands, the growth in paid-up capital would not mean anything of substantial nature to benefit the investors; the latter have otherwise no logical reason to expect gains that would match the prices at which they would be buying the related stocks at the prices, now prevailing in the market.
The country's insurance sector until now has been operating without an effective regulatory body. The government has recently adopted a law to facilitate the establishment of an insurance development and regulatory authority. Hopefully, the government would appoint competent people from the private sector to the top positions of the authority so that the problems, impeding the growth of this important financial sub-sector, can be addressed efficiently and effectively. If the ministry concerned follows the old way of manning the regulatory bodies, the very objective behind the formation of the insurance regulatory authority would be frustrated.
Last but not the least, the capital market regulator, the Securities and Exchange Commission (SEC), while looking at the regular price movement of stocks, does need to give a particular attention to developments, relating to prices of life insurance stocks.
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