KARACHI, Feb 29: Unrest in Karachi and other parts of the country in reaction to the assassination of Benazir Bhutto has led to a massive increase in payment of claims by the insurance companies.

Over 700 motor vehicles were torched alone in Karachi while over 300 bank branches were set ablaze across the country.

It ultimately led to payment of a heavy price by the industry to various firms and vehicle owners for damages done to their properties and motor vehicles by unruly mobs.

As financial results of insurance companies are gradually pouring in, these are showing payment of heavy amounts made against loss of properties and vehicles.

The non-life insurance companies have reported heavy payments in their balance-sheets regarding loss of properties and motor vehicles. The loss-making trend shows that net claims of insurance companies surged by 65 per cent.

However, two top companies, Adamjee and EFU, having a collective weight of over 40 per cent in non-insurance business, are yet to come out with their results regarding payments made for properties and motor vehicles.

Net claim to net premium (claim ratio) has been recorded at 74 per cent in 2007 as against 56 per cent in 2006. This high ratio will certainly hit profitability of the insurance companies which have smaller size in Pakistan as compared to other regional countries, like India and China.

The claim ratio is higher in property which reached 117 per cent, showing that violence resulted in more damages to properties.

It was reported in the media that factories, commercial properties and banks were targeted in violence in Sindh, but urban areas, like Karachi, Hyderabad and Sukkur, were special targets. It was also reported that hundreds of vehicles burnt on highways were not insured.

The claim ratio in motor insurance increased by 79 per cent, reflecting the scale of damage to vehicles during violence.

The insurance claims for both properties and motor vehicles suddenly jumped in the last quarter of the last calendar year.

Interestingly, as per nine-month results of the sector in 2007, the claim ratio in property and motor insurance was 73 and 72 per cent, respectively.

“The scenario took a U-turn after the violence in December 2007 in the wake of Ms Bhutto’s assassination,” said Mohammad Imran, head of research at the First Capital Equities.

“In my opinion, underwriting profitability trend will be mirrored in the upcoming results of insurance companies,” said Imran, adding he was expecting a 40 per cent decline in underwriting profits of Adamjee Insurance Company.

Analysts said the insurance companies would be covering their losses through their earnings in the stock market.

Analysts said payment to affected clients, like banks, was continuing, and it would take time to repair the damages done to properties.

However, violence has created a sense of uncertainty among people having costly commercial properties and owners of motor vehicles. This uncertainty has also increased importance of insurance, and may benefit the industry in future.