Why share prices of insurance companies are increasing even in economic recession

Share prices of most insurance companies have risen almost daily in the last one month. Due to ongoing economic uncertainty in the country and outside the country, a kind of stagnation has been going on in the country’s capital market for several months. Among them, such a positive trend of insurance companies is somewhat exceptional.

Of the 57 insurance companies listed on the Dhaka Stock Exchange (DSE), 53 rose in price, 3 stuck to the floor price and 1 declined marginally.

A top official of a brokerage firm, who did not want to be named, said there was an upward trend in the sector after the regulator proposed to make insurance mandatory for all types of vehicles. Because this initiative is expected to have a positive impact for them.

Prime Minister Sheikh Hasina gave instructions on March 1 to ensure that no uninsured vehicles ply on the roads. That is why the Insurance Development and Regulatory Authority (IDRA) has sent a proposal to the Ministry of Finance to take the initiative to amend the Road Transport Act-2018.

The Financial Institutions Department of the Ministry of Finance has prepared a summary in this regard and has already sent it to the Prime Minister’s Office for consideration.

As per the insurance regulatory body’s proposal, car owners may face a fine of up to Rs 3,000 if not insured.

At one time insurance was compulsory for all vehicles including motorcycles, cars, buses, trucks. According to the Road Safety Foundation, at least 7,713 people were killed in road accidents in 2022. However, the law was repealed in 2018.

This policy of the government to make insurance compulsory can increase the income of insurance companies.

However, life insurance providers’ share prices are rising after news that insurance may again be made compulsory for all types of vehicles, said the broker.

There are rumors that some big companies are taking stakes in the insurance sector. So many are interested in investing in these institutions’, he added.

Many people are deciding to invest in insurance companies after hearing that rumour. Because in recent months, mainly due to floor prices, the share prices of most companies have not fluctuated much.

In July last year, the Bangladesh Securities and Exchange Commission (BSEC) set a floor price for each share to prevent the index from falling in the market amid global economic uncertainty. While it was withdrawn for some institutions in December, the rule was again imposed on shares of all institutions in March.

“Most of our stocks go up without any logic and we are always on the lookout for companies where big investors buy shares,” said one investor.

A top official at an investment bank, who did not want to be named, said the news of making vehicle insurance compulsory has given investors a boost, which is important. Manipulators are trying to take advantage of this positive attitude of investors, he said.