Press Release

JCR-VIS Reaffirms IFS Rating of EFU General Insurance Limited

Karachi, July 11, 2016: JCR-VIS Credit Rating Company Limited has reaffirmed the Insurer Financial Strength (IFS) 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 June 24, 2015.

EFU General Insurance enjoys a leading position in the general insurance business with market share of 24.5% in gross premiums. It has showcased improving operational indicators along with strong capitalization and liquidity profile supported by sound underwriting policies. EFU’s senior management team comprises qualified and experienced resources, having long association with the company.

Gross premium of EFU led by volumetric growth in property and motor business amounted to Rs. 15.0b (CY14: Rs. 14.5b), growing by 3.4% in CY15. There was no major change in business mix with property continuing to be the lead contributor to revenues. EFU has also successfully launched its Window Takaful operations in May 2015.

With underwriting results improving on a time line basis, the overall profitability continues to be well supported by investment income of Rs. 1.2b (CY14: Rs. 0.9b) and profit after tax stood higher at Rs 4.0b (CY14: Rs. 1.8b), primarily owing to a one time reversal. EFU has a sizeable investment portfolio of Rs 24.5b (CY14: Rs. 21.3b) including an investment of Rs. 8.6b (CY14: Rs. 7.3b) in EFU Life Assurance Limited. A reversal therein of Rs. 1.9b has provided significant boost to the profitability during CY15. Imposition of higher tax rate on investment income on the insurance industry is likely to have a negative impact on all insurers bottom line in the ongoing year. The company has adequate reinsurance arrangements with a diversified panel of entities having sound risk profiles. In line with business growth, the management has negotiated capacity enhancements in major segments, whilst keeping net retention at manageable levels.

Other than EFU Life Assurance Limited, which is one of the leading private sector life insurance companies, the investment portfolio comprises a mix of equities, sovereign instruments, term deposit receipts, real estate properties and mutual funds. Equity portfolio is subject to market risk; however, there is sizable unrealized gain on the portfolio that provides sufficient cushion against the downside movement in equity. Credit risk associated with sovereign funds is minimal. Moreover, exposure to market risk in income funds is mitigated by these funds having Fund Stability Rating in the ‘AA’ band.

Enhancement in shareholder’s equity resulted in improvement in leverage indicators of the company. Liquidity profile of the company is considered sound; insurance debt in relation to total gross premium compares favorably to most peers. Ageing profile of insurance debt is also considered satisfactory.
For further information on this rating announcement, please contact the undersigned (Ext: 501) or Mr. Mohammed Khalid Ali (Ext: 508) at 35311861-70 or fax to 35311872-73.


Javed Callea
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 2016 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .