JCR-VIS Credit Rating Company Limited, on Monday, reaffirmed the Insurer Financial Strength Rating of Pak Qatar General Takaful Limited (PQGTL) at ‘A-’ (Single A Minus).
Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on September 28, 2017.
The rating incorporates strong sponsor support from Qatar based financial institutions. According to the rating agency, since the past two years, PQGTL has adopted a consolidation strategy whereby loss-making portfolios have been shed off.
However, it said that given the prevailing competition in the insurance market, the company also faces significant pressure on premium rates. As a result, business volumes of the company have reduced on a timeline basis. The company continues to diversify its business mix from motor oriented to other non-motor segments, said the rating agency.
“On account of lower net retention, the risk of the company has declined in terms of business booked. Going forward, the extent of risk on own account would be an important rating driver, “ it said.
With a conservative stance of the company to underwrite profitable businesses, claims ratio of the company has improved on a timeline basis. Nevertheless, loss ratios will continue to be a function of the quality of underwriting undertaken by management.
Moreover, the rating agency reported that the company was able to adopt a cost-cutting strategy by merging existing branches as well as centralizing its operations. With an improvement in underwriting performance, the company earned a higher profit at the bottom line. Ability to maintain these performance metrics over time will be a key rating driver.
With an improvement in the bottom line, equity base of PQGTL improved. Nevertheless, leverage indicators of the company continue to remain on the higher side as compared to peers on account of current capitalization levels, which would need to be strengthened. Moreover, the financial leverage of the company has increased significantly on account of a higher balance of outstanding claims.
Growth in insurance debt levels as a proportion of gross premium will also need to be arrested in order to improve its liquidity position, it said.