VIS Credit Rating Company Limited has reaffirmed the Insurer Financial Strength Rating of Reliance Insurance Company Limited (RICL) at 'A' (Single A). Outlook on the assigned ratings is 'Positive'.
The rating signifies high capacity to meet policyholder and contractual obligations. Risk factors may vary over time due to business/economic conditions. The previous rating action was announced on December 31, 2018.
The current rating continues to derive strength from the sound leverage indicators and liquidity profile of the company. Moreover, underwriting quality is also considered prudent as claims ratios (both gross and net) remain on the lower side. Strong reinsurance programme and sustainability in quantum of underwriting profits will continue to be key determinants for future direction of rating.
With the current economic downturn, Pakistan's insurance market continues to face stiff competition in terms of premium rates and business volumes. Despite growth in the insurance market, gross premiums (including Takaful premiums) of RICL decreased by 20.4 percent largely on account of one of its largest client in the aviation segment closing its operations. Barring aviation, business underwritten in other segments has grown during 2018.
Reinsurance panel of the company is considered strong with Swiss Re as the lead reinsurer. Retention level and treaty capacities remained unchanged during the outgoing year. Going forward, extent of risk on own account would be an important rating driver. With lower business underwritten, underwriting profit of the company's conventional business depicted a decline and amounted to Rs 3.4m (FY17: Rs 19.8m) in 2018; nonetheless, its Window Takaful operations resulted in a positive bottom line in the period under review.
Historically, underwriting operations have received sizeable support from its investment portfolio. However, in 9M19, the company incurred a loss on investments on account of downturn in equity market; the same is expected to pick up pace in the ongoing year. Management may need to strengthen its underwriting operations in order to sustain its profitability and capitalization indicators.-PR