Press Release

VIS Reaffirms IFS Rating of EFU Life Assurance Limited

Karachi, August 21, 2020: VIS Credit Rating Company Limited has reaffirmed the Insurer Financial Strength Rating of EFU Life Assurance Limited (EFUL) at ‘AA+’ (Double A Plus). The rating signifies very high capacity to meet policyholder and contractual obligations. Risk is modest, but may vary slightly over time due to business/economic conditions. Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on March 15, 2019.

Over the years, growth in life insurance industry has largely been a function of economic activity in the country, depicting a double-digit growth over the last five years. Given the low life insurance penetration in Pakistan, growth in gross premiums is expected to continue, although at a reduced rate mainly in unit linked business, given the uncertainty in economic and political environment. Given the positive relationship between development of life insurance and economic growth per capita and recent general economic slowdown in the country, growth in business volumes for life insurance is expected to remain subdued in the coming year. Despite these challenges, EFUL reported a gross premium base of Rs. 31.8b (2018: Rs. 30.8b) in 2019. In line with historical trends, growth in premium was largely contributed by its regular premium individual covers.

Individual life unit linked regular premium policies remains the largest business segment of the company. EFUL’s distribution network comprises of direct sales force and bancassurance distribution through leading commercial banks. With lower anticipated growth of the industry, persistency will remain a key profitability driver for the life insurance market players in the coming years. Although bancassurance remains the primary driver of growth in premiums, the company also strengthened its sales force team and achieved growth in the Window Takaful Operations during 2019. In view of low historic crude death rate along with coverage by highly rated reinsurers, exposure on both individual and group life is considered manageable. At present, risk adjusted capitalization levels of the institution are considered sound in view of healthy capital coverage of claims.

In the backdrop of the changing interest rate scenario, the company has also started building up its long term exposure in government securities. Going forward, while the insurance companies may earn capital gains on investments in higher rate government securities, the impact of continued lockdown on the economy and the financial sector would make the operating dynamics of these companies in terms of receivable collection, in general, challenging. Credit and market risk emanating from the investment portfolio is considered low as majority comprises government securities. Current rating incorporates the strength of the company’s shareholders along with sound governance framework and senior management profile.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 201) or Ms. Muniba Abdullah, CFA (Ext: 215) at 35311861-71 (10 lines) or email at info@vis.com.pk.


Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Life Insurance & Family Takaful (February 2018)
http://vis.com.pk/kc-meth.aspx

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