Press Release

VIS Credit Rating Company Maintains IFS Rating of Pakistan Reinsurance Company Ltd.

Karachi, December 28, 2021: VIS Credit Rating Company Ltd. (VIS) has maintained the Insurer Financial Strength (IFS) rating of Pakistan Reinsurance Company Limited (PRCL) at ‘AA’ (Double A). Outlook on the assigned rating is ‘Positive’. The ‘AA’ rating signifies very high capacity to meet policyholder and contract obligations. Risk is considered modest but may vary slightly over time due to business/economic conditions. Previous rating action was announced on April 2, 2021.

The assigned rating is underpinned by the strong sponsorship of Government of Pakistan (GoP), which directly and indirectly owns 75% controlling stake in the organization. PRCL operates as the sole national reinsurer in Pakistan and all insurance companies are mandated to offer at least 35% of their business to PRCL under treaty arrangements, whereby the company enjoys discretion for first right of refusal. Recently in November 2021, the Board of Privatization Commission approved divestment of 20% stake in PRCL. Major changes in the PRCL’s shareholding could imply a review of the assigned rating.

Given pandemic-induced slowdown, PRCL’s business volumes contracted in 2020. This contraction mainly resulted from loss of a major aviation segment client. Nevertheless, the impact on total underwriting was reduced by the strong growth achieved in ‘Engineering’ segment. Underwriting operations in 2021, have depicted growth, with gross premium being 7% higher in 9M’21 vis-à-vis SPLY. PRCL’s profitability indicators have been affected by an increase in claims ratio, and remained under pressure in the ongoing year. So far, the management has done well in managing the impact of higher loss ratios on the company’s combined ratio, by minimizing the uptick in overheads, despite a high inflation environment. Furthermore, on the back of strong growth in (recurring) investment income, the company’s net operation ratio depicted improvement.
The investment portfolio has depicted a shift in asset class exposures with proportion of equity exposure reducing on a timeline. Furthermore, the duration of the debt portfolio has been reduced, with increase in T-Bill holdings. Given this reduction duration as well as equity holdings, exposure to market risk has reduced while exposure to credit risk remained similar on a timeline. Given that growth in underwriting has remained contained, the operating leverage remains conservative. We have noted an increase in financial leverage, as technical reserves have been growing on a timeline. The increase in interim period is line with trend, wherein technical reserves are usually elevated as of 9M-end. Accordingly, this is likely to recede by year-end. VIS will continue to monitor the same on a timeline.
PRCL has a diversified reinsurance panel with mostly ‘A’ and above rated companies. Governance framework at PRCL depicts room for improvement. Timely completion of the Board of Directors (BoDs), stability in the senior management team and timely mitigation of risks identified by the management are considered important from the ratings perspective.

For further information on this rating announcement, please contact Mr. Arsal Ayub, CFA (Ext: 215) or the undersigned (Ext: 306) at (021) 35311861-66 or email at info@vis.com.pk.




Faryal Ahmad Faheem
Deputy CEO

VIS Entity Rating Criteria Methodology - General Insurance (November 2019)
http://vis.com.pk/kc-meth.aspx

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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .