Press Release

VIS Reaffirms Insurer Financial Strength Rating of Takaful Pakistan Limited

Karachi, March 28, 2019: VIS Credit Rating Company Limited has reaffirmed the Insurer Financial Strength Rating of Takaful Pakistan Limited (TPL) at ‘BBB+’ (Triple B Plus). The rating signifies adequate capacity to meet policyholder and contractual obligations; risk factors are considered variable over time due to business/economic conditions. Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on March 27, 2018.

The assigned rating of Takaful Pakistan Limited (TPL) factors in the significant changes undertaken by the company to comply with regulatory requirements along with improving its financial strength. In January 2018, a consortium comprising four individual investors acquired 68.44% of TPL; these investors possess extensive experience in motor vehicle sales and support services. As a result, paid up capital increased to Rs. 500.0m at end-June 2018, resulting in compliance with minimum MCR.

During ongoing year 2018, TPL underwent major structural changes in terms of its shareholding pattern, profile of board of directors (BoD) & senior management team; the newly inducted management team has taken initiatives to improve the governance structure. The company continues to benefit from a sound reinsurance panel. Going forward, the company plans to approach the international reinsurance market for their new lines of businesses; developments in this regard are yet to materialize.

Historically, TPL has reported underwriting losses from operations on account of which a business consolidation strategy was adopted. However, with the change in management, the company has gained an aggressive stance towards building its business volumes. Management intends to focus aggressively on motor, health, crop & livestock and travel segments. Translation of the same in to a profitable bottom line will remain contingent on prudent underwriting management while maintaining key performance metrics.

Despite management’s strategy of gradually consolidating its loss making segments, underwriting loss increased significantly in FY18 on account of higher expenses. This increase in expense ratio translated into a combined ratio above 100% mark. Profitability indicators will need to improve to be commensurate with the assigned rating.

Current rating also takes into account the sound liquidity indicators of the company. Given recent fresh capital injection, operating and financial leverage of the company improved considerably during the period under review. However, in line with aggressive growth in business, net risk retained by TPL will increase considerably. The company may need to increase capitalization levels further for supporting such a business plan.

For further information on this rating announcement, please contact the undersigned (Ext: 207) or Mr. Atiq Anwar Mahmudi (Ext: 208) at 021-35311861-70 or fax to 021-35311873.

Jamal Abbas Zaidi
Advisor

Applicable Rating Criterion: Takaful Companies (December 2016)
https://www.vis.com.pk/kc-meth.aspx

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