IGI INSURANCE LIMITED (IGI)

Transcription

1 IGI INSURANCE LIMITED (IGI) IFS RATING REPORT NEW [NOV-17] PREVIOUS [JUNE-17] REPORT CONTENTS Insurer Financial Strength (IFS) Rating Outlook 1. SUMMARY ANALYSES AA AA 2. FINANCIAL SUMMARY Rating Watch Rating Watch 3. RATING SCALE 4. REGULATORY AND SUPPLEMENTARY DISCLOSURE NOV 2017

2 Profile & Ownership IGI Insurance Limited (IGI), established in 1953, is listed on Pakistan Stock Exchange The packages group including Babar Ali Family holds ~62% stake in the company Packages Group, under the umbrella of IGI Financial Services established foothold in the financial sector (i) IGI Insurance, (ii) IGI Life, (iii) IGI Investment Bank Limited, and (iv) IGI Securities Limited. While, major strategic investments have been parked on the balance sheet of IGI Insurance (end-sep16; BV: PKR 15 bln, MV: PKR 57bln) The group has initiated corporate restructuring, envisioned to create a Holding Company (HoldCo), thereby separating strategic investment from its insurance business. This would benefit in creating value in excess of its parts. The company has filed a petition for sanctioning of the Scheme of Amalgamation under Sections 284 to 288 of the now repealed Companies Ordinance, 1984 in the High Court of Sindh for approval of merger (effective 31-Dec-16) and then de-merger (effective 31-Jan-17). Governance and Management Eight-member Board of Directors comprises two independent directors, one executive director, who is also CEO of the company and five non-executive directors representing the main sponsoring family. The board is chaired by an industrial veteran Syed Babar Ali and comprises of seasoned professionals with a diverse portfolio of experiences. The CEO of the company, Mr. Chaudry Tahir Masaud, is an ACII and MBA from LUMS, having diversified national and international insurance related experience of over two decades Business Risk IGI, having a market share of 4.3%, stands at 5th position in terms of industry s GPW in 9M16. Segment mix is diversified with fire (36%), motor (28%), marine (14%), and health segment (8%), and rest comprise miscellaneous The top ten clients concentration is moderately high at ~20%, however, captive GPW (27%) provides stable stream to the topline GPW witnessed impressive growth (20%), invariably in all segments The gross loss was high due to one-off claim in the engineering segment, effective reinsurance strategy protected the company on net account to settle the net loss ratio at 53%, stable YoY The combined ratio remained in comfortable range of 94%, however, the size of underwriting profits is small (PKR 42mln). Sizable Total Operating Income (9M16: PKR 1,279mln) provides boost to the bottomline; mainly comprising stable stream of dividends (PKR 1,089mln) from strategic investments with strong fundamentals. Investments Sizeable Investment Book (Sep16: PKR 15,834) represents 1.3times of its equity base; majorly deployed in strategic investments (PKR 15,064mln), liquid avenues (PKR 390mln), investment properties 9PKR 182mln) Strategic portfolio majorly constitutes Nestle Pakistan (PKR 6,472mln; 9.62% holding), Packages (PKR 5,430; 27% holding), Packages Construction (PKR 1,000; 25% holding), IGI Investment Bank (PKR 245; 42% holding), IGI Life (PKR 858; 82% holding), Tri-Pak Films (PKR 565mln; 9.67% holding), Sanofi (PKR 391mln; 19% holding), and others. ` The investment yield on the book stand at 1.4% in 9M16; herein, the unrealized gain though declined YoY, remained huge ~PKR 43bln. Financial Risk The liquidity position of the company is comparatively low, wherein the liquid investment (PKR 390mln) is short of providing coverage to company s gross claims outstanding (PKR 1,214) Although, the liquidity coverage net-off reinsurance improves to 1.6times, remains lower than peers Reinsurance arrangements are robust, with reinsurers of sound international repute standing within strong categories of IFS rating GENERAL INSURANCE RATING RATIONALE The rating draws comfort from the investments-holding company structure of IGI Insurance. This, while generating non-core revenue stream, provides strong risk absorption capacity to the company, engendering high level of resilience and flexibility against varied risks. The company continued to march on growth trajectory, invariably in all segments, while maintaining diversification of premium mix. Advanced IT platform supports efficient operations, particularly superior claims handling system. Comfort is drawn from the sound governance practices of the group. KEY RATING DRIVERS The rating is placed on rating watch, with developing status. The sponsors of IGI group intend to redesign the overall structure of its multiple businesses engaged primarily in the ambit of financial services. Formation of a financial services Holding Company (Holdco) structure is proposed. A two-step transaction is envisaged which comprises of i) merger of IGI Investment Bank Limited (IGI IBL) with and into IGI Insurance company (IGI) and ii) de-merger of Insurance division and certain investments along with corresponding liabilities held by IGI Insurance into IGI General Insurance Ltd. and IGI Investments (Private) Limited respectively. The merger and de-merger would be under share swap arrangement; whereby shareholders of IGI IBL will be issued IGI s shares according to a swap ratio of 1:92, while swap ratio of hived down insurance entity is yet to be decided. The Company has filed a petition for sanctioning of the Scheme of Amalgamation under Sections 284 to 288 of the now repealed Companies Ordinance, 1984 in the High Court of Sindh for approval of merger and then demerger. The hearing has been smooth in the Sindh High Court. There was no major challenge as such and the court has reserved the order which is yet to be announced. The merger of IGI IBL with and into IGI have minimal impact on profile of IGI, due to its small size (1.6% of merged entity). However, hived-down of insurance would change the entire corporate structure, and, hence, would necessitate rating review. The de-merger to form a holding company will bring further focus to the group s strategy to deliver various financial services. PACRA would continue to monitor these developments and the rating would be updated accordingly. IGI INSURANCE COMPANY LIMITED (IGI) Page 1 of 7 Nov

3 IGI Insurance Limited (IGI) GENERAL INSURANCE Financials [Summary] BALANCE SHEET 30-Sep Dec Dec-14 Investments Liquid Investments Investment in Associates 15,262 11,977 12,072 Other Investments ,834 12,883 12,639 Insurance Related Assets 1,804 1,073 1,086 Other Assets TOTAL ASSETS 18,576 14,651 14,490 Equity 12,595 12,261 11,579 Underwriting Provisions 1, Insurance Related Liabilities 1,860 1,121 1,096 Other Liabilities Borrowings 2, TOTAL EQUITY & LIABILITIES 18,576 14,651 14,490 INCOME STATEMENT 30-Sep Dec Dec-14 Gross Premium Written (GPW) 2,379 2,344 2,140 Net Premium Revenue (NPR) 1,027 1,122 1,045 Net Claims (547) (586) (595) Net Operational Expenses (437) (454) (431) UNDERWRITING INCOME / (LOSS) - Adjusted Total Operating Income 1,237 1, Other Income/ (expense) including financial charges (48) (21) (57) PROFIT BEFORE TAX 1,231 1, RATIO ANALYSIS 30-Sep Dec Dec-14 Underwriting Results Loss Ratio 53% 52% 57% Combined Ratio 96% 93% 98% Performance Operating Ratio -20% -37% 10% Investment Yield 1% 12% 34% Liquididity & Solvency Liquidity Ratio times IGI Insurance Limited (IGI) November 2017

4 GENERAL INSURANCE AND GENERAL TAKAFUL RATING SCALE RATING SYMBOLS & DEFINITIONS: INSURER FINANCIAL STRENGTH (IFS) RATING SCALE & DEFINITIONS Insurer Financial Strength (IFS) rating reflects forward-looking opinion on relative ability of the insurance company to meet policyholders and contractual obligations. RATING SCALE AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC CC C D DEFINITION Exceptionally Strong. Exceptionally strong capacity to meet policyholder and contract obligations. Risk factors are minimal and the impact of any adverse business and economic factors is expected to be extremely small. Very Strong. Very strong capacity to meet policyholder and contract obligations. Risk factors are modest, and the impact of any adverse business and economic factors is expected to be very small Strong. Strong capacity to meet policyholder and contract obligations. Risk factors are moderate, and the impact of any adverse business and economic factors is expected to be small. Good. Good capacity to meet policyholder and contract obligations. Although risk factors are somewhat high, and the impact of any adverse business and economic factors is expected to be manageable. Moderately Weak. Moderately weak with an uncertain capacity to meet policyholder and contract obligations. Though positive factors are present, overall risk factors are high, and the impact of any adverse business and economic factors is expected to be significant. Weak. Weak capacity to meet policyholder and contract obligations. Risk factors are very high, and the impact of any adverse business and economic factors is expected to be very significant. Very Weak. Very weak with a very poor capacity to meet policyholder and contract obligations. CCC : Risk factors are extremely high, and the impact of any adverse business and economic factors is expected to be insurmountable. 'CC': Some form of insolvency or liquidity impairment appears probable. 'C': Insolvency or liquidity impairment appears imminent. Distressed Extremely weak capacity with limited liquid assets to meet policyholders and contractual obligations, or subjected to some form of regulatory intervention and declared insolvent by the regulator. Outlook (Stable, Positive, Negative, Developing) Indicates the potential and direction of a rating over the intermediate term in response to trends in economic and/or fundamental business/financial conditions. It is not necessarily a precursor to a rating change. Stable outlook means a rating is not likely to change. Positive means it may be raised. Negative means it may be lowered. Where the trends have conflicting elements, the outlook may be described as Developing. Rating Watch Alerts to the possibility of a rating change subsequent to, or in anticipation of, a) some material identifiable event and/or b) deviation from expected trend. But it does not mean that a rating change is inevitable. A watch should be resolved within foreseeable future, but may continue if underlying circumstances are not settled. Rating Watch may accompany Outlook of the respective opinion. Suspension It is not possible to update an opinion due to lack of requisite information. Opinion should be resumed in foreseeable future, but may stay in abeyance for long. However, if this does not happen within six (6) months, the rating should be considered withdrawn. Withdrawn A rating is withdrawn on a) termination of rating mandate, b) cessation of underlying entity, or c) the rating remains suspended for six months. Disclaimer: PACRA s IFS rating does not constitute any form of guarantee of the ability of the insurance company to meet policyholders obligations; nor does it constitute a recommendation to effect or discontinue any policy of insurance. PACRA's rating is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security s market price or suitability for a particular investor.

5 Regulatory and Supplementary Disclosure Name of Issuer Sector Type of Relationship Purpose of the Rating IGI Insurance Limited General Insurance Solicited Independent Risk Assessment Rating History Date Rating Outlook Action 6-Dec-17 AA Rating Watch Developing Maintain 21-Jun-17 AA Rating Watch Developing Maintain 30-Dec-16 AA Rating Watch Developing Maintain 31-Dec-15 AA Stable Maintain 8-Jan-15 AA Stable Maintain 10-Jan-14 AA Stable Maintain 21-Feb-13 AA Stable Maintain Related Criteria and Research Rating Methodology Sector Research Insurer Financial Strength Rating Insurance General - Viewpoint Oct-17 Rating Analysts Iqra Bashir Jhangeer Hanif iqra.bashir@pacra.com jhangeer@pacra.com ( ) ( ) Rating Team Statement Disclaimer Rating Procedure Rating is an opinion on relative credit worthiness of an entity or debt instrument. It does not constitute recommendation to buy, hold or sell any security. 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