October 15, 2018: JCR-VIS Credit Rating Company Limited has assigned initial Insurer Financial Strength (IFS) rating of ‘AA’ (Double A) to Pakistan Reinsurance Company Limited (PRCL). Outlook on the rating is ‘Stable’.
According to the rating agency, the rating signifies 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 rating also incorporates strong sponsorship with the sovereign holding 75% through direct and indirect investments, the report said.
PRCL is the sole local re-insurer in the country enjoying a significant market share by virtue of having the first right of acceptance up to 35% of the treaty business. With its monopolistic position in the market, PRCL plans to increase its share of business, which is currently below the stipulated limit in most cases owing to selective business underwritten over the years.
“In line with an aggressive growth stance, the company may need to consider reducing exposure on its net account.”
During the outgoing year, loss ratios of the company increased depicting weakening in the underwriting profile; however, the same showed improvement with combined ratio reported at 89.1% in the first half of 2018.
Ability to maintain underwriting performance metrics will be a key rating factor in the coming years. Current rating of the company derives strength from its sound liquidity and capitalization indicators. Moreover, leverage indicators have remained low indicating significant room for growth.
Over the period under review, bottom line of PRCL was supported by booking significant income from disposal of investments.
According to the press release, given the downward trend in the equity market and current interest rate scenario, ability to maintain healthy return from investments would be challenging. Investment portfolio of the company continues to be a mix of equity and government paper.
During the period under review, PRCL experienced a change at the helm with appointment of a new Chief Executive Officer. A management level change was also witnessed at the position of Chief Financial Officer. Revamping of its underwriting, claims and reinsurance departments was undertaken by adding additional resources. Investment management team was also bolstered.
“Going forward, stability of the management team, which is being addressed, is considered important to achieve long term objectives of the company. Management has also made concerted efforts in improving the governance and internal control framework of PRCL”, the report concluded.