KARACHI, March 23: Adamjee Insurance Company Limited — the largest insurance company in Pakistan — reported on Friday, net loss in the staggering sum of Rs500 million for the year ended December 31, 2001. The loss is thought to be the first red ink in the 40- year history of the company.

Since the insurance giant had already posted Rs212 million in losses for the first half of the year, everyone was expecting the full year also to end in deficit. But the after tax loss of Rs499 million announced by the Board at mid-day Friday, stood out as ‘worst-than-expected’. (Just how ‘worst’ can be gauged by the fact that one leading brokerage house had estimated the loss to be lower than Rs200 million).

The year before, company had reported after tax profit of Rs156 million and distributed cash dividend at 15 per cent along with bonus shares also at 15 per cent. The board did say on Friday, that it was omitting dividend for the year 2001, but did not disclose other relevant figures of revenue and claims paid.

The Board also did not issue a statement to explain the reasons for the devastating loss, leaving investors to fend for themselves. Annual General Meeting (AGM) is scheduled to be held on May 7, at Karachi.

Election of directors would presumably be on the agenda at the AGM. While several previous attempts to wrest the company control from sponsors have failed, the threat this time looks real. Mansha group — that has interests in cement, textiles and of course the Muslim Commercial Bank — is understood to have prepared itself for the raid.

The latest MCB accounts for the year ended December 31, 2001 show that the bank has bought 15.8 million shares in Adamjee at cost of Rs943.6 million (at average of Rs60 per share). MCB had raised its stake in Adamjee, from Rs798.1 million at end of 2000. Given the total outstanding Adamjee shares at 54.3 million, MCB was seen to be in command of nearly 30 per cent of the Insurance company’s equity.

Employee funds and associated companies could also be holding some of the equity. “We estimate that MCB sponsors hold over 40 per cent of Adamjee equity”, says Mohammed Sohail, head of research at Invest Capital & Securities. He argues that with the support of some proxies, the group would be able to place as many as five of the nine directors on the Board, “assuming no legal restrictions occur”.

The hostile take-over law is yet to see the light of day, but if the corporate raiders succeed in wresting the control of Adamjee Insurance at the AGM on May 7, it would go down in history as the first ever takeover of a huge company in Pakistan.

Now trading at around Rs40, the share in Adamjee Insurance has recovered almost 100 per cent since the low of Rs20 it touched in October 2001, when the KSE-index had dipped to below 1,100 points. But for all that the Adamjee stock has underperformed the market by 32 per cent in the current rally, which has seen the index climb by as much as 48 per cent to 1,884 points in less than three months of the current year, since January 1.

Analysts differ on whether the current price of Rs40 for the stock is already at a premium or the price could flare up in the wake of the May Board elections and may be, subsequent restructuring of the company.

High claims from the UAE business were believed to be behind the company’s fall from grace. Retained premium in the overseas business (UAE) had grown 91 per cent in the year 2000. And it was that risky growth that was at the heart of the company’s skyrocketing claims ratio. The motor claims ratio in the UAE branch had soared to over 80 per cent in all of 2000, which led to company-wide erosion of profit.

“The company’s policy to expand its motor insurance business in the Middle East was a risky manoeuvre”, says Sohail of InvestCap. The company’s problems had been exacerbated by a couple of major claims also on the local front. Claims paid during the first half of the year had doubled to Rs1,514 million, from Rs782 million in the previous similar period.

Motor claims, quite clearly, had struck the crowning blow, rising by a huge 145 per cent to Rs1,166 million, from Rs475 million.

The auditors’ report on the company’s annual accounts for the year ended December 31, 2000, had been laced with at least three qualifications, which went to increase the investors’ concerns.

For the shareholders in Adamjee Insurance, the financial results that they witness since last year are far cry from those they were accustomed to see, since the company’s inception, forty-one years ago. Healthy growth in retained premiums, profitable operation in all lines of business, a sea of liquidity and robust dividends that averaged to 40 per cent, mostly tied to stock bonuses, were a regular feature, year after year. The 10-rupee share in the company that now lingers at Rs40, had once shot up to as high as Rs460 — in 1994.

So are the recent results really the signs of fatigue and the entry into the old age of beyond 40? It is difficult to judge. But what looks interesting is that at the next elections to the Board if the attempt to takeover the largest insurance company in Pakistan, is met with success, the corporate raiders are not likely to be able to seize — if at all they do — a company in the prime of health.