Press Release

JCR-VIS Reaffirms IFS Rating of EFU General Insurance Limited

Karachi, June 24, 2015: JCR-VIS Credit Rating Company Limited has reaffirmed the Insurer Financial Strength Rating of EFU General Insurance Limited (EFU) at ‘AA+’ (Double A Plus). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on November 25, 2014.

EFU is the largest general insurance company in Pakistan. The company has more than 80 years of experience in the general insurance industry and enjoys largest market share, geographical diversification and strong franchise. The rating incorporates reinsurance arrangements in place, liquidity profile and improved underwriting performance of the company. Moreover, profile and stability in senior management team is also considered positively in the rating assessment.

The company has depicted steady growth in business volumes over the years though growth was lower than industry in 2014. Business mix largely comprises fire and property related risks while the proportion of other business lines has been restricted over time. Following the receipt of necessary regulatory approvals, the company has initiated takaful operations in May 2015.
Underwriting performance has improved on the back of notable improvement in claims incidence. The company incurred large marine claims in 2014; however, impact of the same was absorbed on the back of adequate reinsurance arrangements. Average risk profile of reinsurers on the company’s panel is in the A category with Swiss Re and Scor Re enjoying lead share in major business segments. Underwriting profit depicted improvement in 2014 while investment income continues to augment the bottom line of the company, with net operating ratio also improving during the year.

The company holds a large portfolio of marketable securities in addition to strategic interest in EFU Life Assurance Limited, which is one of the leading life insurance company in the private sector. A major portion of the portfolio is invested in listed equities in view of which, the company’s exposure to price risk is sizeable. Other than equities, the portfolio comprises a mix of sovereign instruments, TDRs, real estate properties and mutual funds. Exposure to interest rate risk increased during 2014 as the company built exposure in long term fixed rate bonds, both directly and by way of mutual funds. The investment portfolio carried sizeable unrealized gains at year-end; equity market related unrealized gains may have eroded to an extent in 1Q15 while valuation of fixed income portfolio is expected to have increased with benchmark rate having been reduced to 7% in May 2015. Downside risk to earnings has been stemmed to an extent by locking in the higher return on these bonds. Liquidity profile is considered sound as the company has built sizeable liquid reserves over time, the quantum of which has improved in relation to reported liabilities in view of improved valuation of marketable securities.

For further information on this rating announcement, please contact the undersigned (Ext: 508) or Ms. Sobia Maqbool (Ext: 604) at 35311861-70 (10 lines) or fax to 35311872-73.


Mohammed Khalid Ali
Advisor

Applicable Rating Criteria:
Methodology: General Insurance (Nov 2003)
http://www.jcrvis.com.pk/images/methodology.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2015 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .