Press Release

VIS Reaffirms IFS Rating of EFU General Insurance Limited

Karachi, September 11, 2020: VIS Credit Rating Company Limited has reaffirmed the Insurer Financial Strength (IFS) Rating of EFU General Insurance Limited (EFU) at ‘AA+’ (Double A Plus). Outlook on the assigned rating is ‘Stable’. The rating indicates very high capacity to meet policyholder and contract obligations. Risk is considered modest, but may vary slightly over time due to business/economic conditions. The previous rating action was announced on July 30, 2019.

The rating assigned to EFU is underpinned by its strong financial profile and dominant market positioning in the private insurance sector of Pakistan, as evident from its market share of 23.3% in 2019 (2018: 24.3%). During 2019, EFU’s gross underwriting (inclusive of takaful contributions) grew by 6%, which lagged the 10% growth posted by the industry. An uptick was noted in both net claims and underwriting expense ratios, as a result of which combined ratio increased, albeit remained aligned with the peer median. EFU’s adjusted profitability was notably better than 2018. Nevertheless, given high dividend payout, the company’s equity did not depict any change during the period. On the contrary, given adverse movement in the equities portfolio and dividend payment in Q1’20, the company’s equity base reduced by 7%. An uptick in leverage has been noted, albeit overall financial indicators continue to remain aligned with its peers.

EFU’s assigned rating is supported by a sound reinsurance panel, with majority of business lines reinsured by companies with ratings in the ‘A’ band. In 2020, the company has made some changes to its reinsurance arrangements, as a result of which the premium cession has reduced in Q1’20; and full year 2020 premium cession is expected to be lower and aligned with the peers.

The impact of the outbreak of novel coronavirus on the insurance has been relatively measured so far. While, it is likely that gross premium underwritten will be impacted for 2020, the impact is expected to be limited. Furthermore, profitability is likely to improve, mainly on account of better claims performance - as a result of depressed economic activity - and improved investment income.

VIS will continue to monitor the insurance industry trends, particularly insurance debt and liquidity indicators, and rating may be revisited if notable adverse trends emerge. The assigned ratings remain dependent on maintaining leverage and liquidity in line with the threshold.

For further information on this rating announcement, please contact Mr. Arsal Ayub (Ext: 213) at 35311861-70 or fax to 35311872-73.

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: General Insurance (March 2017)

1 Accounts for unrealized losses on equities

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VIS Credit Rating Company Limited