REPORT OF THE DIRECTORS TO THE SHAREHOLDERS

The Directors are pleased to present the forty-ninth Annual Report of the Company together with the Audited Accounts and Auditors' Report thereon for the year ended December 31, 2002.

The economy, in macro terms, has taken an upturn as a result of the reforms implemented by the Government in the last three years. Foreign exchange reserves are at a record high level, the rupee has appreciated, bank rates have reduced and inflation has been controlled. Foreign investments on the overall have increased in some sectors, particularly the oil & gas sector has seen a significant inflow, and the Stock Exchange index has performed very well generally with increased volumes backed by a good return on investments. These are positive indicators and, if maintained, the year 2003 might prove to be a strong year.

The business environment for the Insurance Industry, however, was not as encouraging because of the adverse impact of the after effects of 9/11 causing great difficulties in the reinsurance arrangements and increased rates of premium on certain hazardous assets. Your Company nevertheless, has shown a growth of 21% in the Gross Premium (GP) written during the year 2002 and the following was the overall performance of the Company for the year ended December 31, 2002:

	2002	2001	INC/(DEC)
	(Rupees in Million)		%
Gross Premium	299	247	21
Net Premium	135	102	32
Net Premium and Commission	167	145	15
Net Claims paid, outstanding and IBNR	41	43	(5)
Profit from underwriting business	90	70	29
Management Expenses Charged to Revenue Accounts	36	32	13
Profits, Dividend and Other Income	147	91	62
Profit before tax	215	128	68
Profit after tax	174	111	57

Gross Premium (GP) written was higher than planned and increased from Rs. 247 million in 2001 to Rs. 299 million for the year 2002 showing a growth of 21%, because of new business as well as increased premium from existing clients. The share of Fire, Marine and Motor & Miscellaneous segments was 40%, 24% and 36% respectively, which was similar to that of last year. Net Premium & Commission at Rs. 167 million increased by Rs. 22 million or 15% over Rs. 145 million in the last year, and the underwriting profit at Rs. 90 million increased by 28% or Rs. 20 million over Rs. 70 million in the last year, because of volume growth, decrease in claims coupled with better profits from the motor department as a result of carefully selected business. The Company has adopted new format of accounts as required by the Securities and Exchange Commission of Pakistan (SECP) vide SRO 938 dated 22 December 2002 and as a result thereof underwriting profit increased by Rs. 4 million because of the change in accounting policy.

Investment income rose from Rs. 91 million to Rs. 147 million during the year 2002 showing a growth of 62% or Rs. 56 million because of better dividends received from investments in most of the blue chip companies. The income from Term Finance Certificates (TFCs) and bank deposits was slightly lower because of lower rates on deposits and fresh TFCs. Other income at Rs. 4 million was better compared to Rs. 3 million last year, mainly from administrative surcharge recovered. The Company also recognized an unrealized gain on shares held for trading as a result of adoption of IAS-39, which amounted to Rs. 10 million. During the year a provision of Rs. 23 million was made towards the diminution in value of some of the investments against a provision of Rs. 32 million last year.

The profit before tax (PBT) as a result of increase in both underwriting profit and dividend & other income was Rs. 215 million against Rs. 128 million last year, showing significant increase of Rs. 87 million or 68%. After having tax provision of Rs. 41 million the profit after tax at Rs. 174 million increased by 57% compared to Rs. 111 million last year, as a result of which earning per share also increased from Rs. 10.35 to Rs. 16.28. We would like to mention that the Income Tax Department while making assessment for the year 2000 has not allowed provision for diminution in value of investments amounting to Rs. 86 million made in that year, which will be strongly take up in appeal by the management.

As per corporate strategy, the management is striving to take advantage of the new opportunities arising out of the financial limitation imposed by the new insurance ordinance and strict reinsurance conditions, which as a result of our strongest balance sheet in the industry, has given your Company a distinct competitive edge. Besides that, the policy of underwriting selective risks without any compromise on quality business, increase in branch network and customer base has rewarded the Company with a steady growth. Similarly the investing activities of the Company are also geared to strengthen portfolio investments for a continuous stream of income to support and enlarge the financial muscle of the Company with a view to maintaining a VERY STRONG capacity to meet policyholder and contract obligations and to attract new clients. It shall continue to be the objective of the management to improve quality of its services and to strengthen mutual trust and relationships with our valued clients.

 

Munnawar Hamid QBE                                   Syed Hyder Ali Chairman                                                      Chief Executive

Karachi: March 22, 2003.