NOV 2017

The Pakistan Credit Rating Agency Limited

IFS RATING REPORT

NEW [NOV-17]

PREVIOUS [JUNE-17]

REPORT CONTENTS

1. SUMMARY ANALYSES

Insurer Financial Strength (IFS) Rating

AA AA

2. FINANCIAL SUMMARY

Outlook Rating Watch

Rating Watch

3. RATING SCALE

4. REGULATORY AND SUPPLEMENTARY

DISCLOSURE

IGI INSURANCE LIMITED

(IGI)

The Pakistan Credit Rating Agency Limited

GENERAL INSURANCE

IGI INSURANCE COMPANY LIMITED (IGI) Page 1 of 7

Nov 2017 www.pacra.com

RATING RATIONALE

The rating draws comfort from the

investments-holding company structure of IGI

Insurance. This, while generating non-core

revenue stream, provides strong risk

absorption capacity to the company,

engendering high level of resilience and

flexibility against varied risks. The company

continued to march on growth trajectory,

invariably in all segments, while maintaining

diversification of premium mix. Advanced IT

platform supports efficient operations,

particularly superior claims handling system.

Comfort is drawn from the sound governance

practices of the group.

Profile & Ownership

IGI Insurance Limited (IGI), established in 1953, is listed on Pakistan Stock

Exchange

The packages group including Babar Ali Family holds ~62% stake in the company

Packages Group, under the umbrella of “IGI Financial Services” established

foothold in the financial sector (i) IGI Insurance, (ii) IGI Life, (iii) IGI Investment

Bank Limited, and (iv) IGI Securities Limited. While, major strategic investments

have been parked on the balance sheet of IGI Insurance (end-Sep16; BV: PKR 15

bln, MV: PKR 57bln)

The group has initiated corporate restructuring, envisioned to create a Holding

Company (HoldCo), thereby separating strategic investment from its insurance

business. This would benefit in creating value in excess of its parts. The company

has filed a petition for sanctioning of the Scheme of Amalgamation under Sections

284 to 288 of the now repealed Companies Ordinance, 1984 in the High Court of

Sindh for approval of merger (effective 31-Dec-16) and then de-merger (effective

31-Jan-17).

Governance and Management Eight-member Board of Directors comprises two independent directors, one

executive director, who is also CEO of the company and five non-executive

directors representing the main sponsoring family.

The board is chaired by an industrial veteran – Syed Babar Ali and comprises of

seasoned professionals with a diverse portfolio of experiences.

The CEO of the company, Mr. Chaudry Tahir Masaud, is an ACII and MBA from

LUMS, having diversified national and international insurance related experience

of over two decades

Business Risk

IGI, having a market share of 4.3%, stands at 5th position in terms of industry’s

GPW in 9M16.

Segment mix is diversified with fire (36%), motor (28%), marine (14%), and

health segment (8%), and rest comprise miscellaneous

The top ten clients concentration is moderately high at ~20%, however, captive

GPW (27%) provides stable stream to the topline

GPW witnessed impressive growth (20%), invariably in all segments

The gross loss was high due to one-off claim in the engineering segment, effective

reinsurance strategy protected the company on net account to settle the net loss

ratio at 53%, stable YoY

The combined ratio remained in comfortable range of 94%, however, the size of

underwriting profits is small (PKR 42mln).

Sizable Total Operating Income (9M16: PKR 1,279mln) provides boost to the

bottomline; mainly comprising stable stream of dividends (PKR 1,089mln) from

strategic investments with strong fundamentals.

Investments

Sizeable Investment Book (Sep16: PKR 15,834) represents 1.3times of its equity

base; majorly deployed in strategic investments (PKR 15,064mln), liquid avenues

(PKR 390mln), investment properties 9PKR 182mln)

Strategic portfolio majorly constitutes Nestle Pakistan (PKR 6,472mln; 9.62%

holding), Packages (PKR 5,430; 27% holding), Packages Construction (PKR

1,000; 25% holding), IGI Investment Bank (PKR 245; 42% holding), IGI Life

(PKR 858; 82% holding), Tri-Pak Films (PKR 565mln; 9.67% holding), Sanofi

(PKR 391mln; 19% holding), and others. `

The investment yield on the book stand at 1.4% in 9M16; herein, the unrealized

gain though declined YoY, remained huge ~PKR 43bln.

Financial Risk

The liquidity position of the company is comparatively low, wherein the liquid

investment (PKR 390mln) is short of providing coverage to company’s gross

claims outstanding (PKR 1,214)

Although, the liquidity coverage net-off reinsurance improves to 1.6times, remains

lower than peers

Reinsurance arrangements are robust, with reinsurers of sound international repute

standing within strong categories of IFS rating

KEY RATING DRIVERS

The rating is placed on rating watch, with

developing status. The sponsors of IGI group

intend to redesign the overall structure of its

multiple businesses engaged primarily in the

ambit of financial services. Formation of a

financial services Holding Company (Holdco)

structure is proposed. A two-step transaction

is envisaged which comprises of i) merger of

IGI Investment Bank Limited (IGI IBL) with

and into IGI Insurance company (IGI) and ii)

de-merger of Insurance division and certain

investments along with corresponding

liabilities held by IGI Insurance into IGI

General Insurance Ltd. and IGI Investments

(Private) Limited respectively. The merger

and de-merger would be under share swap

arrangement; whereby shareholders of IGI

IBL will be issued IGI’s shares according to a

swap ratio of 1:92, while swap ratio of hived

down insurance entity is yet to be decided.

The Company has filed a petition for

sanctioning of the Scheme of Amalgamation

under Sections 284 to 288 of the now repealed

Companies Ordinance, 1984 in the High Court

of Sindh for approval of merger and then de-

merger. The hearing has been smooth in the

Sindh High Court. There was no major

challenge as such and the court has reserved

the order which is yet to be announced. The

merger of IGI IBL with and into IGI have

minimal impact on profile of IGI, due to its

small size (1.6% of merged entity). However,

hived-down of insurance would change the

entire corporate structure, and, hence, would

necessitate rating review. The de-merger to

form a holding company will bring further

focus to the group’s strategy to deliver various

financial services. PACRA would continue to

monitor these developments and the rating

would be updated accordingly.

The Pakistan Credit Rating Agency Limited

IGI Insurance Limited (IGI)

BALANCE SHEET 30-Sep-16 31-Dec-15 31-Dec-14

Investments

Liquid Investments 390 715 439

Investment in Associates 15,262 11,977 12,072

Other Investments 182 191 127

15,834 12,883 12,639

Insurance Related Assets 1,804 1,073 1,086

Other Assets 939 694 765

TOTAL ASSETS 18,576 14,651 14,490

Equity 12,595 12,261 11,579

Underwriting Provisions 1,307 821 721

Insurance Related Liabilities 1,860 1,121 1,096

Other Liabilities 462 300 339

Borrowings 2,352 148 755

TOTAL EQUITY & LIABILITIES 18,576 14,651 14,490

INCOME STATEMENT 30-Sep-16 31-Dec-15 31-Dec-14

Gross Premium Written (GPW) 2,379 2,344 2,140

Net Premium Revenue (NPR) 1,027 1,122 1,045

Net Claims (547) (586) (595)

Net Operational Expenses (437) (454) (431)

UNDERWRITING INCOME / (LOSS) - Adjusted 42 81 20

Total Operating Income 1,237 1,472 979

Other Income/ (expense) including financial charges (48) (21) (57)

PROFIT BEFORE TAX 1,231 1,532 942

RATIO ANALYSIS 30-Sep-16 31-Dec-15 31-Dec-14

Underwriting Results

Loss Ratio 53% 52% 57%

Combined Ratio 96% 93% 98%

Performance

Operating Ratio -20% -37% 10%

Investment Yield 1% 12% 34%

Liquididity & Solvency

Liquidity Ratio – times 1.6 0.9 -0.5

IGI Insurance Limited (IGI)

November 2017

GENERAL INSURANCE

Financials [Summary]

The Pakistan Credit Rating Agency Limited

GENERAL INSURANCE AND GENERAL TAKAFUL

RATING SCALE

RATING SYMBOLS & DEFINITIONS:

INSURER FINANCIAL STRENGTH (IFS)

RATING SCALE & DEFINITIONS

RATING SCALE DEFINITION

AAA Exceptionally Strong.

Exceptionally strong capacity to meet policyholder and contract obligations. Risk factors are minimal and the

impact of any adverse business and economic factors is expected to be extremely small.

AA+

AA

AA-

Very Strong.

Very strong capacity to meet policyholder and contract obligations. Risk factors are modest, and the impact of any

adverse business and economic factors is expected to be very small

A+

A

A-

Strong.

Strong capacity to meet policyholder and contract obligations. Risk factors are moderate, and the impact of any

adverse business and economic factors is expected to be small.

BBB+

BBB

BBB-

Good.

Good capacity to meet policyholder and contract obligations. Although risk factors are somewhat high, and the

impact of any adverse business and economic factors is expected to be manageable.

BB+

BB

BB-

Moderately Weak.

Moderately weak with an uncertain capacity to meet policyholder and contract obligations. Though positive factors

are present, overall risk factors are high, and the impact of any adverse business and economic factors is expected

to be significant.

B+

B

B-

Weak.

Weak capacity to meet policyholder and contract obligations. Risk factors are very high, and the impact of any

adverse business and economic factors is expected to be very significant.

CCC

CC

C

Very Weak.

Very weak with a very poor capacity to meet policyholder and contract obligations. ‘CCC’: Risk factors are

extremely high, and the impact of any adverse business and economic factors is expected to be insurmountable.

'CC': Some form of insolvency or liquidity impairment appears probable. 'C': Insolvency or liquidity impairment

appears imminent.

D Distressed

Extremely weak capacity with limited liquid assets to meet policyholders and contractual obligations, or subjected

to some form of regulatory intervention and declared insolvent by the regulator.

Outlook (Stable, Positive, Negative,

Developing) Indicates the potential and direction of a

rating over the intermediate term in

response to trends in economic and/or

fundamental business/financial conditions.

It is not necessarily a precursor to a rating

change. ‘Stable’ outlook means a rating is

not likely to change. ‘Positive’ means it

may be raised. ‘Negative’ means it may be

lowered. Where the trends have conflicting

elements, the outlook may be described as

‘Developing’.

Rating Watch Alerts to the possibility of a rating change

subsequent to, or in anticipation of, a)

some material identifiable event and/or b)

deviation from expected trend. But it

does not mean that a rating change is

inevitable. A watch should be resolved

within foreseeable future, but may

continue if underlying circumstances are

not settled. Rating Watch may

accompany Outlook of the respective

opinion.

Suspension It is not possible to update

an opinion due to lack of

requisite information.

Opinion should be resumed

in foreseeable future, but

may stay in abeyance for

long. However, if this does

not happen within six (6)

months, the rating should

be considered withdrawn.

Withdrawn A rating is withdrawn

on a) termination of

rating mandate, b)

cessation of

underlying entity, or

c) the rating remains

suspended for six

months.

Insurer Financial Strength (IFS) rating reflects forward-looking opinion on relative ability of the insurance company to

meet policyholders and contractual obligations.

Disclaimer: PACRA’s IFS rating does not constitute any form of guarantee of the ability of the insurance company to meet policyholders’ obligations;

nor does it constitute a recommendation to effect or discontinue any policy of insurance. PACRA's rating is not a recommendation to purchase, sell or

hold a security, in as much as it does not comment on the security’s market price or suitability for a particular investor.

Name of Issuer IGI Insurance Limited

Sector General Insurance

Type of Relationship Solicited

Purpose of the Rating Independent Risk Assessment

Rating History

Dissemination

Date Rating Outlook Action

6-Dec-17 AA Rating Watch Developing Maintain

21-Jun-17 AA Rating Watch Developing Maintain

30-Dec-16 AA Rating Watch Developing Maintain

31-Dec-15 AA Stable Maintain

8-Jan-15 AA Stable Maintain

10-Jan-14 AA Stable Maintain

21-Feb-13 AA Stable Maintain

Related Criteria and Research

Rating Methodology Insurer Financial Strength Rating

Sector Research Insurance | General - Viewpoint | Oct-17

Rating Analysts Iqra Bashir Jhangeer Hanif

iqra.bashir@pacra.com jhangeer@pacra.com

(92-42-35869504) (92-42-35869504)

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