AM Best Revises Outlooks to Stable for EFU General Insurance Limited
July 19 2024 - 9:47AM
Business Wire
AM Best has revised the outlooks to stable from negative
and affirmed the Financial Strength Rating of B- (Fair) and the
Long-Term Issuer Credit Rating of bb-” (Fair) of EFU General
Insurance Limited (EFUG) (Pakistan).
The Credit Ratings (ratings) reflect EFUG’s balance sheet
strength, which AM Best assesses as adequate, as well as its strong
operating performance, neutral business profile and marginal
enterprise risk management (ERM).
The stable outlooks reflect the improvement in EFUG’s
risk-adjusted capitalisation, as measured by Best’s Capital
Adequacy Ratio (BCAR), and AM Best’s expectation that BCAR will
remain at least at the strong level prospectively. The improvement
in EFUG’s risk-adjusted capitalisation to the strong level in 2023
from the weak level in 2022 follows an increase in reported capital
and surplus and shortening of the duration of the bond portfolio.
However, risk-adjusted capitalisation remains potentially volatile
and sensitive to asset risk, which is the primary driver of
required capital. In line with regulatory requirements, all assets
are held in Pakistan and the investment portfolio is concentrated
in domestic government bonds and equity securities. This exposes
the company to potential capital volatility. Further offsetting
factors include a high dependence on reinsurance and exposure to a
non-rated reinsurance counterparty, through mandatory cessions to
the state-owned reinsurer in Pakistan.
EFUG has a history of robust operating profitability, with a
five-year (2019-2023) weighted average return on equity of 12.9%,
supported by positive underwriting and investment results. The
company has generated solid underwriting profits over the same
period, with an average combined ratio of 90.5%. Despite difficult
market conditions and higher natural peril losses in recent years,
AM Best expects prospective underwriting performance to remain
strong.
EFUG benefits from its leading market position domestically in
Pakistan, with an estimated market share of 22% in 2023. The
company has a well-diversified underwriting portfolio across
non-life business segments, and when combining conventional and
takaful business, EFUG wrote consolidated gross written premium of
PKR 41.5 billion (USD 149.1 million) in 2023. The company leverages
its long-standing client relationships to maintain a defendable
market position, which has helped it to navigate its challenging
business environment.
Over the past year, EFUG has continued to formalise and
strengthen its ERM framework and capabilities. However, in AM
Best’s view, the company’s risk profile remains high as a result
Pakistan’s ongoing deteriorated risk environment. Whilst AM Best
notes EFUG’s historical operational resilience to country risk
factors, risk management challenges are presented by its
concentration of business and assets in Pakistan.
This press release relates to Credit Ratings that have been
published on AM Best’s website. For all rating information relating
to the release and pertinent disclosures, including details of the
office responsible for issuing each of the individual ratings
referenced in this release, please see AM Best’s Recent Rating
Activity web page. For additional information regarding the use and
limitations of Credit Rating opinions, please view Guide to Best’s
Credit Ratings. For information on the proper use of Best’s Credit
Ratings, Best’s Performance Assessments, Best’s Preliminary Credit
Assessments and AM Best press releases, please view Guide to Proper
Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and
data analytics provider specialising in the insurance
industry. Headquartered in the United States, the company does
business in over 100 countries with regional offices in London,
Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more
information, visit www.ambest.com.
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Charlotte Vigier Senior Financial Analyst +44
20 7397 0270 charlotte.vigier@ambest.com
Christopher Sharkey Associate Director, Public
Relations +1 908 882 2310
christopher.sharkey@ambest.com
Timothy Prince Director - Analytics +44 20 7397
0320 timothy.prince@ambest.com
Al Slavin Senior Public Relations Specialist +1
908 882 2318 al.slavin@ambest.com