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RATINGS DECEMBER

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					                                                                                                                                                                    LIFE INSURANCE
 The Pakistan Credit Rating Agency Limited

 RATINGS (FEBRUARY 2011)                                       RATING RATIONALE AND KEY RATING DRIVERS
 ADAMJEE LIFE ASSURANCE                                        The rating reflects Adamjee Life's association with financially sound business groups – Nishat and
 COMPANY (ALAC)                                                 Hollard. The rating draws comfort from the sponsors' long established presence in the local and
                                                                international markets. Meanwhile, established business relationships and extensive outreach of its
                         NEW           PREVIOUS                 group companies, mainly Adamjee Insurance and MCB Bank, would help ALAC in developing its
Insurance                                                       client base. As the company is in its development phase, its ability to build strong internal controls,
Financial                  A                A                   requisite IT infrastructure, efficient systems and procedures, and sound business policies is important.
Strength                                                       The rating is dependent on the management's ability to timely and successfully establish ALAC’s
                                                                position amidst a competitive landscape and its relatively different business model. Meanwhile,
                                                                execution of the company's aggressive growth strategy would remain challenging. Retention and
                                                                cohesiveness of senior management is critical to ensure consistency in policies and strategy. As the
FINANCIAL DATA                                                  company’s overall performance is expected to remain under pressure over the medium term, continuous
(PKR (mln)                                                      support from the parent groups would remain critical.

                                 3Q10
                                            Aug08-              ASSESSMENT
                                8-          Dec-09
Total Assets                       555            576          Over the decades, life insurance sector of Pakistan has experienced slow growth mainly due to
Equity                             369            489             nationalization of insurance sector in 1972. The government allowed private entrants in the industry in
Policy holders’ liability          104             11             1990. However, with two-thirds of the population living in non-urban areas coupled with low literacy
                                                                  rate, the insurance sector faces various hurdles in its growth. With growing population, the industry
Net Premium Revenue                168              24            offers exponential growth prospects.
                                                                 Initially Adamjee Life is mainly focusing on generating business from conventional life insurance
Underwriting Results*             (34)           (47)             schemes while gradually expanding its product range to offer a wide variety of investment schemes.
Loss Ratio (%)                     4.6           15.2             Overall, the company would focus on low ticket size insurance products, matching the requirements of
Expense Ratio (%)                115.5          277.8             urban and rural population considering relatively low per capita income levels in the country. This is
 * Net of management expenses                                     expected to help the company in establishing its position while maintaining its risk exposures at an
                                                                  adequate level.
                                                                 During 9 months ended Sep10, the company earned net premium of PKR168mln. Owing to the
                                                                  company’s development phase, wherein it is setting up distribution channels and requisite IT
                                                                  infrastructure, management expenses stood at PKR106mln. Hence, high acquisition costs resulted in
                                                                  underwriting loss.
                                                                 Going forward, the company has formulated an aggressive growth strategy. Unlike the current agent-
                                                                  driven business procurement practices in the life insurance industry, Adamjee Life is using automated
                                                                  and third party distribution channels for marketing its products, which is a relatively different business
                                                                  model. So far, the products have been launched using various means including online selling,
                                                                  bancassurance, call centre and mobile selling. Meanwhile, the company intends to use group
 ANALYSTS                                                         companies’ selected branches, particularly MCB Bank Limited and Adamjee Insurance Company
                                                                  Limited, to reach its potential customers. The company’s overall performance is expected to remain
 Ayesha Saleemi                                                   under pressure over the medium term, continuous support from the parent groups would be vital.
 +92 42 35869504                                                 The senior management team of ALAC comprises qualified and young professionals, though having
 ayesha.saleemi@pacra.com                                         relatively less experience in life insurance industry. Retention and cohesiveness of senior management
                                                                  would remain critical to ensure consistency in policies and strategy.
 Rana M. Nadeem
                                                                 The company, with the help of AICL and Hollard, has designed and implemented various policies and
 +92 42 35869504
                                                                  manuals which include reassurance manual, underwriting manual, claims manual and risk management
 nadeem@pacra.com
                                                                  framework. All the procedures and systems are fully automated to help the company in providing
                                                                  quality services to its customers while bringing efficiency in its overall operations.
                                                                 The company has formulated an investment policy. The investment book is projected to be dominated
                                                                  by government securities (60%), followed by remunerative bank deposits (20%) and equity securities
                                                                  (20%).
                                                                 During initial years of operation, the company intends to keep risk at low level. Hence, retention levels
                                                                  are expected to remain lower. The company, with a cession level of 70%, has reinsurance arrangement
                                                                  with an international reinsurance company - Munich Re (rated ‘AA-’ by ‘Standard and Poor’s)..
                                                                 ALAC’s capitalization is currently at an adequate level. However, due to higher initial setup cost, initial
                                                                  operating losses may further consume the equity base. Nonetheless, the sponsors have shown their
                                                                  commitment to support the company, as and when the need arises.
                                                                PROFILE
                                                               Adamjee Life Assurance Company Limited (ALAC) is a newly setup life insurance company operating
                                                                in Pakistan. The company was formed in 2008 as a result of a partnership between Adamjee Insurance
                                                                (55%) and Hollard Insurance (45%). Adamjee Insurance is a part of Nishat group - a leading
                                                                conglomerate of Pakistan with strong presence in banking, insurance, textiles, and cement sector.
                                                                Hollard Group is a leading insurance group of South Africa.
                                                               The company’s BoD comprises seven members, including the CEO of the company. There are three
                                                                directors each from the two main sponsors, while one director is independent. Mr. Fredrik de Beer, the
                                                                Chief Executive Officer of ALAC, has significant experience of over two decades in various sectors
                                                                including life insurance business. He is assisted by a team of young professionals educated from local
                                                                and foreign institutions.



 PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. PACRA shall owe no liability
 whatsoever to any loss or damage caused by or resulting from any error in such information. None of the information in this document may be copied or otherwise reproduced, stored or disseminated in whole or in part in
 any form or by any means whatsoever by any person without PACRA’s written consent. Our reports and ratings constitute opinions, not recommendations to buy or to sell.
 Tel: 92 (42) 35869504              Fax: 92 (042) 35830425 www.pacra.com

				
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