Press Release
VIS Upgrades IFS Rating of UBL Insurers Limited
Karachi, September 27, 2019: VIS Credit Rating Company Limited (VIS) has upgraded the Insurer Financial Strength (IFS) rating of UBL Insurers Limited (UIL) from ‘AA-’ (Double A Minus) to ‘AA’ (Double AA). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on August 20, 2018.
The rating upgrade takes into account UIL’s growth momentum - which has translated in improvement in market share - and persistently strong profitability metrics. Leverage has increased on a timeline, but remains moderate and is aligned with peers. The rating further incorporates reinsurance arrangements largely with counterparties having sound credit risk profiles, while net retention also remains lower than peers. The ratings continue to be underpinned by the strong sponsor profile, and their supervisory function which reinforces the control infrastructure.
In 2018, UIL’s business volumes showcased a growth rate of 22.8% (Gross Premium 2018: Rs. 3.4b; 2017: Rs. 2.8b). UIL’s market share thus improved from 3.9% to 4.4% for 2018. Sizable contribution from, the relatively safer, Fire & Property (F&P) and Marine segments, places the company’s business mix favorably. Underwriting performance was slightly adverse in 2018, vis-à-vis the preceding year on account of high claims incidence in both major segments i.e. F&P and Motor segments; nevertheless, on net account, the profitability was not impacted. With profitability metrics remaining stable, underwriting profit improved by 18%, mainly attributable to the volumetric growth in gross premiums and reduced cession.
Even though on a YoY basis UIL’s retention has increased, the net risk retention per event remained limited. Insurance debt has risen on a timeline; however, comfort is derived from the aging profile of insurance debt, wherein more than 70% of the same is outstanding for a period of less than 6 months. Furthermore the company has maintained an adequate buffer of solvency margin.
Going forward, the prevailing macroeconomic slowdown is expected to translate in a lag on industry growth. So far, we have not noted any slowdown in UIL’s operational performance, with the company having posted 28% growth in gross premiums in H1’19, vis-à-vis same period last year. Given moderated growth projections, the leverage is expected to be maintained, wholly on the back of internal capital generation. Nevertheless, the mandatory implementation of IFRS 17, by end-FY21, is expected to impact the capitalization metrics of the company and the industry at large. The assigned ratings remain dependent on maintenance of market share, capitalization and liquidity indicators along with moderation in insurance debt.
For further information on this rating announcement, please contact the undersigned (Ext: 201) at (021)-35311861-71 or fax to (021)-35311872-3.
Javed Callea
Advisor
Applicable rating criterion: Methodology - General Insurance (September 2016)