The China-Pakistan Economic Corridor (CPEC) will provide numerous opportunities for Pakistan’s insurance industry, especially in general insurance, according to the State Bank of Pakistan (SBP) in its annual financial stability review.
The CPEC is a collection of construction projects around Pakistan jointly undertaken by the two countries which aims to improve the infrastructure and stimulate the economy of Pakistan.
“Pakistan is expected to witness continued growth in almost all sectors of the insurance industry with significant growth expected in the takaful segment,” the central bank’s report said.
However, the report cautioned that the operations and investment returns of insurers are subject to market volatility and other macro-economic factors.
Investments constitute about 76% of the Pakistani insurance industry’s assets. As such, the sector is exposed to risk if there is an abrupt change in capital markets or a “low for longer” interest environment persists, according to the Express Tribune.
Another risk that the sector is exposed to is undisciplined market players. According to reports, a state-owned general insurer has not published its financial report since 2011 and has alleged irregularities. If the government and regulators are not able to exert control on these companies, then a significant systemic risk build-up could occur.
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