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NOV 2017
The Pakistan Credit Rating Agency Limited
IFS RATING REPORT
NEW [NOV-17]
PREVIOUS [JUNE-17]
REPORT CONTENTS
1. SUMMARY ANALYSES
Insurer Financial Strength (IFS) Rating
AA AA
2. FINANCIAL SUMMARY
Outlook Rating Watch
Rating Watch
3. RATING SCALE
4. REGULATORY AND SUPPLEMENTARY
DISCLOSURE
IGI INSURANCE LIMITED
(IGI)
The Pakistan Credit Rating Agency Limited
GENERAL INSURANCE
IGI INSURANCE COMPANY LIMITED (IGI) Page 1 of 7
Nov 2017 www.pacra.com
RATING RATIONALE
The rating draws comfort from the
investments-holding company structure of IGI
Insurance. This, while generating non-core
revenue stream, provides strong risk
absorption capacity to the company,
engendering high level of resilience and
flexibility against varied risks. The company
continued to march on growth trajectory,
invariably in all segments, while maintaining
diversification of premium mix. Advanced IT
platform supports efficient operations,
particularly superior claims handling system.
Comfort is drawn from the sound governance
practices of the group.
Profile & Ownership
IGI Insurance Limited (IGI), established in 1953, is listed on Pakistan Stock
Exchange
The packages group including Babar Ali Family holds ~62% stake in the company
Packages Group, under the umbrella of “IGI Financial Services” established
foothold in the financial sector (i) IGI Insurance, (ii) IGI Life, (iii) IGI Investment
Bank Limited, and (iv) IGI Securities Limited. While, major strategic investments
have been parked on the balance sheet of IGI Insurance (end-Sep16; BV: PKR 15
bln, MV: PKR 57bln)
The group has initiated corporate restructuring, envisioned to create a Holding
Company (HoldCo), thereby separating strategic investment from its insurance
business. This would benefit in creating value in excess of its parts. The company
has filed a petition for sanctioning of the Scheme of Amalgamation under Sections
284 to 288 of the now repealed Companies Ordinance, 1984 in the High Court of
Sindh for approval of merger (effective 31-Dec-16) and then de-merger (effective
31-Jan-17).
Governance and Management Eight-member Board of Directors comprises two independent directors, one
executive director, who is also CEO of the company and five non-executive
directors representing the main sponsoring family.
The board is chaired by an industrial veteran – Syed Babar Ali and comprises of
seasoned professionals with a diverse portfolio of experiences.
The CEO of the company, Mr. Chaudry Tahir Masaud, is an ACII and MBA from
LUMS, having diversified national and international insurance related experience
of over two decades
Business Risk
IGI, having a market share of 4.3%, stands at 5th position in terms of industry’s
GPW in 9M16.
Segment mix is diversified with fire (36%), motor (28%), marine (14%), and
health segment (8%), and rest comprise miscellaneous
The top ten clients concentration is moderately high at ~20%, however, captive
GPW (27%) provides stable stream to the topline
GPW witnessed impressive growth (20%), invariably in all segments
The gross loss was high due to one-off claim in the engineering segment, effective
reinsurance strategy protected the company on net account to settle the net loss
ratio at 53%, stable YoY
The combined ratio remained in comfortable range of 94%, however, the size of
underwriting profits is small (PKR 42mln).
Sizable Total Operating Income (9M16: PKR 1,279mln) provides boost to the
bottomline; mainly comprising stable stream of dividends (PKR 1,089mln) from
strategic investments with strong fundamentals.
Investments
Sizeable Investment Book (Sep16: PKR 15,834) represents 1.3times of its equity
base; majorly deployed in strategic investments (PKR 15,064mln), liquid avenues
(PKR 390mln), investment properties 9PKR 182mln)
Strategic portfolio majorly constitutes Nestle Pakistan (PKR 6,472mln; 9.62%
holding), Packages (PKR 5,430; 27% holding), Packages Construction (PKR
1,000; 25% holding), IGI Investment Bank (PKR 245; 42% holding), IGI Life
(PKR 858; 82% holding), Tri-Pak Films (PKR 565mln; 9.67% holding), Sanofi
(PKR 391mln; 19% holding), and others. `
The investment yield on the book stand at 1.4% in 9M16; herein, the unrealized
gain though declined YoY, remained huge ~PKR 43bln.
Financial Risk
The liquidity position of the company is comparatively low, wherein the liquid
investment (PKR 390mln) is short of providing coverage to company’s gross
claims outstanding (PKR 1,214)
Although, the liquidity coverage net-off reinsurance improves to 1.6times, remains
lower than peers
Reinsurance arrangements are robust, with reinsurers of sound international repute
standing within strong categories of IFS rating
KEY RATING DRIVERS
The rating is placed on rating watch, with
developing status. The sponsors of IGI group
intend to redesign the overall structure of its
multiple businesses engaged primarily in the
ambit of financial services. Formation of a
financial services Holding Company (Holdco)
structure is proposed. A two-step transaction
is envisaged which comprises of i) merger of
IGI Investment Bank Limited (IGI IBL) with
and into IGI Insurance company (IGI) and ii)
de-merger of Insurance division and certain
investments along with corresponding
liabilities held by IGI Insurance into IGI
General Insurance Ltd. and IGI Investments
(Private) Limited respectively. The merger
and de-merger would be under share swap
arrangement; whereby shareholders of IGI
IBL will be issued IGI’s shares according to a
swap ratio of 1:92, while swap ratio of hived
down insurance entity is yet to be decided.
The Company has filed a petition for
sanctioning of the Scheme of Amalgamation
under Sections 284 to 288 of the now repealed
Companies Ordinance, 1984 in the High Court
of Sindh for approval of merger and then de-
merger. The hearing has been smooth in the
Sindh High Court. There was no major
challenge as such and the court has reserved
the order which is yet to be announced. The
merger of IGI IBL with and into IGI have
minimal impact on profile of IGI, due to its
small size (1.6% of merged entity). However,
hived-down of insurance would change the
entire corporate structure, and, hence, would
necessitate rating review. The de-merger to
form a holding company will bring further
focus to the group’s strategy to deliver various
financial services. PACRA would continue to
monitor these developments and the rating
would be updated accordingly.
The Pakistan Credit Rating Agency Limited
IGI Insurance Limited (IGI)
BALANCE SHEET 30-Sep-16 31-Dec-15 31-Dec-14
Investments
Liquid Investments 390 715 439
Investment in Associates 15,262 11,977 12,072
Other Investments 182 191 127
15,834 12,883 12,639
Insurance Related Assets 1,804 1,073 1,086
Other Assets 939 694 765
TOTAL ASSETS 18,576 14,651 14,490
Equity 12,595 12,261 11,579
Underwriting Provisions 1,307 821 721
Insurance Related Liabilities 1,860 1,121 1,096
Other Liabilities 462 300 339
Borrowings 2,352 148 755
TOTAL EQUITY & LIABILITIES 18,576 14,651 14,490
INCOME STATEMENT 30-Sep-16 31-Dec-15 31-Dec-14
Gross Premium Written (GPW) 2,379 2,344 2,140
Net Premium Revenue (NPR) 1,027 1,122 1,045
Net Claims (547) (586) (595)
Net Operational Expenses (437) (454) (431)
UNDERWRITING INCOME / (LOSS) - Adjusted 42 81 20
Total Operating Income 1,237 1,472 979
Other Income/ (expense) including financial charges (48) (21) (57)
PROFIT BEFORE TAX 1,231 1,532 942
RATIO ANALYSIS 30-Sep-16 31-Dec-15 31-Dec-14
Underwriting Results
Loss Ratio 53% 52% 57%
Combined Ratio 96% 93% 98%
Performance
Operating Ratio -20% -37% 10%
Investment Yield 1% 12% 34%
Liquididity & Solvency
Liquidity Ratio – times 1.6 0.9 -0.5
IGI Insurance Limited (IGI)
November 2017
GENERAL INSURANCE
Financials [Summary]
The Pakistan Credit Rating Agency Limited
GENERAL INSURANCE AND GENERAL TAKAFUL
RATING SCALE
RATING SYMBOLS & DEFINITIONS:
INSURER FINANCIAL STRENGTH (IFS)
RATING SCALE & DEFINITIONS
RATING SCALE DEFINITION
AAA Exceptionally Strong.
Exceptionally strong capacity to meet policyholder and contract obligations. Risk factors are minimal and the
impact of any adverse business and economic factors is expected to be extremely small.
AA+
AA
AA-
Very Strong.
Very strong capacity to meet policyholder and contract obligations. Risk factors are modest, and the impact of any
adverse business and economic factors is expected to be very small
A+
A
A-
Strong.
Strong capacity to meet policyholder and contract obligations. Risk factors are moderate, and the impact of any
adverse business and economic factors is expected to be small.
BBB+
BBB
BBB-
Good.
Good capacity to meet policyholder and contract obligations. Although risk factors are somewhat high, and the
impact of any adverse business and economic factors is expected to be manageable.
BB+
BB
BB-
Moderately Weak.
Moderately weak with an uncertain capacity to meet policyholder and contract obligations. Though positive factors
are present, overall risk factors are high, and the impact of any adverse business and economic factors is expected
to be significant.
B+
B
B-
Weak.
Weak capacity to meet policyholder and contract obligations. Risk factors are very high, and the impact of any
adverse business and economic factors is expected to be very significant.
CCC
CC
C
Very Weak.
Very weak with a very poor capacity to meet policyholder and contract obligations. ‘CCC’: Risk factors are
extremely high, and the impact of any adverse business and economic factors is expected to be insurmountable.
'CC': Some form of insolvency or liquidity impairment appears probable. 'C': Insolvency or liquidity impairment
appears imminent.
D Distressed
Extremely weak capacity with limited liquid assets to meet policyholders and contractual obligations, or subjected
to some form of regulatory intervention and declared insolvent by the regulator.
Outlook (Stable, Positive, Negative,
Developing) Indicates the potential and direction of a
rating over the intermediate term in
response to trends in economic and/or
fundamental business/financial conditions.
It is not necessarily a precursor to a rating
change. ‘Stable’ outlook means a rating is
not likely to change. ‘Positive’ means it
may be raised. ‘Negative’ means it may be
lowered. Where the trends have conflicting
elements, the outlook may be described as
‘Developing’.
Rating Watch Alerts to the possibility of a rating change
subsequent to, or in anticipation of, a)
some material identifiable event and/or b)
deviation from expected trend. But it
does not mean that a rating change is
inevitable. A watch should be resolved
within foreseeable future, but may
continue if underlying circumstances are
not settled. Rating Watch may
accompany Outlook of the respective
opinion.
Suspension It is not possible to update
an opinion due to lack of
requisite information.
Opinion should be resumed
in foreseeable future, but
may stay in abeyance for
long. However, if this does
not happen within six (6)
months, the rating should
be considered withdrawn.
Withdrawn A rating is withdrawn
on a) termination of
rating mandate, b)
cessation of
underlying entity, or
c) the rating remains
suspended for six
months.
Insurer Financial Strength (IFS) rating reflects forward-looking opinion on relative ability of the insurance company to
meet policyholders and contractual obligations.
Disclaimer: PACRA’s IFS rating does not constitute any form of guarantee of the ability of the insurance company to meet policyholders’ obligations;
nor does it constitute a recommendation to effect or discontinue any policy of insurance. PACRA's rating is not a recommendation to purchase, sell or
hold a security, in as much as it does not comment on the security’s market price or suitability for a particular investor.
Name of Issuer IGI Insurance Limited
Sector General Insurance
Type of Relationship Solicited
Purpose of the Rating Independent Risk Assessment
Rating History
Dissemination
Date Rating Outlook Action
6-Dec-17 AA Rating Watch Developing Maintain
21-Jun-17 AA Rating Watch Developing Maintain
30-Dec-16 AA Rating Watch Developing Maintain
31-Dec-15 AA Stable Maintain
8-Jan-15 AA Stable Maintain
10-Jan-14 AA Stable Maintain
21-Feb-13 AA Stable Maintain
Related Criteria and Research
Rating Methodology Insurer Financial Strength Rating
Sector Research Insurance | General - Viewpoint | Oct-17
Rating Analysts Iqra Bashir Jhangeer Hanif
iqra.bashir@pacra.com jhangeer@pacra.com
(92-42-35869504) (92-42-35869504)
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Disclaimer
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Probability of Default (PD)
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