Comparing the financial performance, 5 companies have achieved return on equity in excess of cost of equity of approx 20% while 9 companies have reported negative returns. The remaining companies had a return of equity of 10% or lower.
Minimum capital requirement (MCR) of PKR 300 million is another driver of M&A in the insurance sector of Pakistan. Currently, 13 players in the market do not meet the MCR requirement as set by Securities and Exchange Commission of Pakistan.
The insurance sector of Pakistan has witnessed significant growth over past 5 years and is expected to more than double by 2015. Pakistan has an estimated population of over 160 million and its insurance penetration rate is only 0.3% which reflects significant potential for growth as compared to regional markets.
Insurance sector in Pakistan is fragmented at the moment with many small players. In my view, I expect to see consolidation in this sector as there are ample opportunities for growth and long term value appreciation.
