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Karachi, VIS Credit Rating Company Limited (VIS) has reaffirmed the Insurer Financial Strength (IFS) rating of UBL Insurers Limited (UIL) at ‘AA+’ (Double A Plus). The AA+ rating signifies a very strong capacity of UIL to meet policyholder and contractual obligations with minimal risk factors. The outlook on the assigned rating remains stable. This announcement follows the previous rating action disclosed on December 29, 2022.
According to VIS Credit Rating Company Limited, the rating of UIL benefits from the support of UBL, Pakistan’s third-largest private commercial bank, and the Bestway Group, which has diverse business interests spanning commercial banking, cement in Pakistan, and sectors like wholesale, pharmacy, and real estate in the UK. UIL’s position as the fifth-largest general insurance company in the industry, with a 4.9% market share as of June 2023, also contributes to its rating. However, the insurance industry faces heightened business risks due to the projected macroeconomic weakening.
During the rating review period, UIL experienced growth in topline revenues, primarily due to inflation adjustments in premium prices. The company’s prudent underwriting approach led to an improvement in loss ratios, outperforming industry benchmarks. Despite registering underwriting losses, largely from higher underwriting expenses and one-time provisioning for a local reinsurer claim, UIL maintained a strong overall risk profile. This is supported by robust reinsurance arrangements with reputable international reinsurers.
The rating also reflects UIL’s comfortable liquidity position, as indicated by improved liquid assets relative to net technical reserves and insurance debt compared to gross premium. Growth in equity base has enhanced operating leverage, and despite an increase in financial leverage, leverage indicators are deemed adequate for the rating level. Additionally, UIL has maintained a healthy aging of claims, with no claim overdue for more than a year as of the end of the review period.
The rating’s future will depend on UIL’s ability to improve its profitability metrics, especially its underwriting performance, amidst challenging business conditions.
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