AM Best Removes From Under Review with Negative Implications, Affirms Credit Ratings of EFU General Insurance Limited

LONDON--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of EFU General Insurance Limited (EFUG) (Pakistan). The outlook assigned to the Credit Ratings (ratings) is stable.

The ratings reflect EFUG’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, neutral business profile and marginal enterprise risk management (ERM).

The rating actions follow the conclusion of a detailed review by the company of its catastrophe exposures, modelled net probable maximum losses (PML) and reinsurance needs. This review resulted in EFUG purchasing additional layers of catastrophe reinsurance protection for 2022 to match its increasing modelled PML estimates for severe events. Consequently, AM Best expects the company’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), to remain comfortably at the very strong level over the medium term.

In addition, EFUG’s strong balance sheet strength assessment reflects the company’s elevated investment risk, which remains the largest component of required capital in BCAR. The company’s investment portfolio is highly exposed to equity securities and solely concentrated in Pakistan. While in line with domestic regulatory requirements, in AM Best’s view, this concentration impacts asset quality and exposes the company to potential capital volatility. Offsetting balance sheet factors also include EFUG’s relatively elevated dependence on reinsurance and its exposure to non-rated reinsurance recoverables through mandatory cessions to the state-owned reinsurer in Pakistan.

EFUG has a history of strong operating profitability, with a five-year (2016-2020) weighted average return on equity of 12.7% and return on premium of 39.5%, supported by positive underwriting and investment results. The company has generated solid technical profits over the same period, with an average combined ratio of 85.1%. While technical results have deteriorated over the past two years, partially owing to competitive pressures on premium rates and increased incidences of natural peril losses, the five-year (2016-2020) weighted average loss ratio is a healthy 44.6%. AM Best expects prospective underwriting performance to remain strong.

EFUG benefits from a leading market position domestically in Pakistan, with a market share of 22% in 2020, as measured by gross written premium (GWP). The company has a well-diversified underwriting portfolio across non-life business segments, and when combining conventional and takaful business, EFUG wrote consolidated GWP of PKR 22.6 billion (USD 141.7 million) in 2020. The company leverages its long-standing client relationships to maintain a defendable market position, which has helped it to navigate its challenging business environment.

In recent years, EFUG has formalised and strengthened its ERM framework and capabilities. Nevertheless, in AM Best’s view, the company continues to face challenges from operating in an elevated risk environment.

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 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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