AM Best Removes From Under Review with Negative Implications, Affirms Credit Ratings of EFU General Insurance Limited.
ENPNewswire-January 21, 2022--AM Best Removes From Under Review with Negative Implications, Affirms Credit Ratings of EFU General Insurance Limited
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Release date- 20012022 - 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...
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