Dawood Family Takaful Limited: PACRA Rating Report

Transcription

1. The Pakistan Credit Rating Agency Limited Rating Report Report Contents Dawood Family Takaful Limited Dissemination Date 20-Jun-2019 27-Dec-2018 12-Jun-2018 11-Dec-2017 30-Mar-2017 Long Term Rating A AAAA- Rating History Short Term Rating - 1 . Rating Analysis 2. Financial Information 3. Rating Scale 4. Regulatory and Supplementary Disclosure Outlook Stable Positive Stable Stable Stable Action Upgrade Maintain Maintain Maintain Maintain Rating Watch - Rating Rationale and Key Rating Drivers The rating denotes strong capacity of the company to meet policyholder and contractual obligations. The rating reflects DFTL's ability to continue capturing takaful volumes. The company has achieved net profitability position, though sustainability is required. The company is also eyeing bancassurance as an additional source of contribution. A sound IT infrastructure provides support to the operational efficacy of DFTL. The company has adequate risk absorption capacity. The management aims to establish strong footprints in the South region in order to garner increased business. The company needs to further strengthen its market position. The rating captures the resilience of the company over the years; the company has gradually expanded it's wings. The rating is dependent upon continued improvement in the company's system share, surplus in takaful fund and sustained liquidity position. At the same time, upholding strong governance practices is critical. The sponsors' financial profile was relatively stretched, which is now improving. Disclosure Powered by TCPDF (www.tcpdf.org) Name of Rated Entity Dawood Family Takaful Limited Type of Relationship Solicited Purpose of the Rating IFS Rating Applicable Criteria Methodology | Life Insurance(Jun-18) Related Research Sector Study | Life Insurance(Jun-19) Rating Analysts Faraan Taimoor | faraan.taimoor@pacra.com | +92-42-35869504
2. Life Insurance The Pakistan Credit Rating Agency Limited Profile Legal Structure Dawood Family Takaful Limited (DFTL), an unlisted Shariah-compliant Family Takaful operator, commenced operations beginning 2009. Background All products in PTF-I are unit linked with the company offering eight products. Banca was launched in 2010. Current agreements with Silkbank, Soneri Bank and Bank Al-Baraka are in place. Operations DFTL operates through a network of 44 branches majorly divided in North, Central and South, with majority of the revenue coming from the central region. Ownership Ownership Structure The company is majorly owned by Dawood Group holding 51% stake, followed by the Bank of Khyber (15%) and GulfCap (8%). Stability There has been no change in ownership structure this year. Business Acumen First Dawood Group (FDG) represents a branch of the reputable Dawood family, which is one of the well-known business groups in Pakistan. FDG has the experience of operating financial institutions namely Dawood Islamic Bank Limited, B.R.R. Guardian Modaraba, First Dawood Investment Bank Ltd and 786 Investment Ltd. Financial Strength First Dawood Group (FDG) has pursued an increasing diversification in the financial sector providing a solid financial footing to the company. Governance Board Structure The overall control of the company vests in a seven member Board of Directors. Members’ Profile The board includes CEO, three representatives of FDG, one of BoK, and two independent directors. Board Effectiveness Board members possess diversified backgrounds and rich business acumen. They provide their input to the management as well as participate in the decision-making process. Financial Transparency The auditors of the company; Deloitte, expressed an unqualified audit and review opinion on the financial statements for CY18. Management Organizational Structure DFTL has a well-defined organisational structure and segregated reporting lines. Management Team Mr. Ghazanfar-ul-Islam, who had been associated with the company for eight years as CFO, was appointed as CEO in Mar’18. Mr. Ghazanfar has vast takaful industry experience and Modaraba experience prior to that. Effectiveness The company has five management committees, a) Underwriting Committee, b) Claims Committee, c) Risk Management & Compliance Committee, d) Human Resource Committee, and e) Re-Takaful Committee. Claim Management System The claims of policyholders on the Waqf are entered into the system after intimation/notification by the customer. The apportionment of the claim to retakaful operator’s share is done automatically by the system. On the other hand, the claims on Participants' Investment Fund (PIF) can be made through partial or full redemption of units held in Personal Investment Account (PIA). Request for units redemption along with original policy from the customer, minimum PKR 10,000, is received and processed in the head office. Investment Management Function The Investment Committee (IC), comprising Head of Actuary (HoA), an appointed third-party Actuary (Mr. Shujat Hussain), three BoD members, CEO, CIO and CFO, is responsible for implementation, modification, and execution of investment policy with respect to (i) Shareholders Fund (ii) Waqf Fund – Group and Individual, and (iii) PIF. HoA’s ensures proper management of asset/ liability match. As per the investment policy, waqf fund is invested in low risk securities (including GoP Ijara Sukuks and bank deposits). Risk Management Framework Risk is managed at department level, where every department has developed its own statement of risk tolerance, approved by the CEO. The company uses an In-House developed operating software to handle the operations relating to underwriting, claims administration, retakaful transactions, policy administration and unitized investment funds. Software runs on real time basis supported by Oracle. Business Risk Industry Dynamics Life insurance sector has seen stupendous growth in recent years (CAGR 4 years: 16%). Major growth is led by the public sector, which grew by 19%; while growth in private sector was 12% .With the advent of takaful window, another avenue has emerged which may benefit the sector in future. Relative Position DFTL is classified as small-sized insurance company with a market share of nearly 1%. Persistency First year Gross Contribution improved to 67%(CY17: 63%) with the second year persistency ratio hovering at an impressive 88%(CY17: 83%). Revenue DFTL’s Gross Contributions (GC) predominantly come from unit-linked products (98%) while the rest emanated from group business. The business is geographically diversified in central region (55%), north (30%), and south (15%). During CY18, company’s Gross Contribution (PKR 1,471mln) grew by 12%. Profitability The combined ratio of PTF stood at 90% (CY17: 87%) mainly on the account of improved reserve ratio. The surplus before distribution in PTF remained steady at PKR 86mln (CY17: PKR 84mln). DFTL, as a measure of improved performance, registered a PAT of PKR 10m, first time it has been able to post a profit. in Shareholders Fund. Investment Performance The company was able to increase its investment income to PKR 32mln (CY17: 27mln). Majority of this income emanates from Return from Deposits. Sustainability The company is targeting 10,000 policies for issuance in year 2019. This is coupled with the management's intention to established strong footprints in the Southern region. The company envisages enhancing business and profitability of the company, as demonstrated in the latest financial statements. Financial Risk Claim Efficiency The claims ratio increased to 10.2% in CY18 (CY17: 6.8%) mainly on the account of increased claims in Individual Family Takaful Fund. Re-Insurance DFTL has in place reinsurance treaty arrangements with Munich Re (AA- by S&P) and Hannover Re (AA- by S&P). Liquidity The liquidity base of the company – in Shareholders’ Fund, Takaful fund and the Investment fund provides the comfort. The liquid assets, at CY18, adequately cover company’s liabilities toward participants by 1.1x. Capital Adequacy DFTL has paid-up capital of PKR 750mln. At CY18, the net shareholder’s equity of the company is PKR 380mln (CY17: PKR 370mln). Dawood Family Takaful Limited Rating Report Jun-19 www.PACRA.com
3. Family Takaful Financials [Summary] Dawood Family Takaful Limited BALANCE SHEET Investments Liquid Investments Others (Sukuk - non-liquid) PKR mln 31-Dec-18 PKR mln 31-Dec-17 PKR mln 31-Dec-16 Insurance Related Assets Other Assets TOTAL ASSETS (SHF + PTF) 3,883 70 3,953 74 263 4,290 3,295 3,295 56 239 3,590 2,647 2,647 47 360 3,054 Equity Balance of Takaful Statutory Funds Insurance Related Liabilities Other Liabilities TOTAL EQUITY & LIABILITIES (SHF + PTF) 380 3,729 81 100 4,290 370 3,050 71 99 3,590 394 2,481 84 95 3,054 INCOME STATEMENT - Extracts REVENUE ACCOUNT Gross Contribution Written (GC) Participants Investment Fund (PIF) Retakaful Expense Wakala Fee Net Claims Operating Income/(Expenses) Investment Income Technical reserves incurred during the year Surplus Before Distribution 31-Dec-18 31-Dec-16 1,471 (864) (52) (374) (57) 112 31 (182) 86 1,313 (778) (46) (335) (33) 80 21 (137) 84 1,178 (574) (46) (352) (32) 4 44 (160) 62 21 7 3 PROFIT AND LOSS (INCLUDING SHAREHOLDERS FUND) Profit/(Loss) before Tax RATIO ANALYSIS 31-Dec-17 31-Dec-18 31-Dec-17 31-Dec-16 Underwriting Results Loss Ratio Combined Ratio 10% 90% 7% 87% 6% 97% Performance Operating Ratio Investment Yield (SHF + PTF) Persistency - First Year Persistency - Second Year 85% -1% 67% 88% 83% -2% 63% 83% 89% 10% 65% 86% 1.1 1.2 1.1 Liquididity & Solvency Liquidity Ratio – times SHF: Shareholdhers' Fund PTF: Participants' Takaful Fund Dawood Family Takaful Limite Jun-19
4.   The Pakistan Credit Rating Agency Limited   INSURER FINANCIAL STRENGTH (IFS) RATING  RATING SCALE & DEFINITIONS  Insurer Financial Strength (IFS) rating reflects forward-looking opinion on relative ability of the insurance company to meet policyholders and contractual obligations.   RATING SCALE   DEFINITION   Exceptionally Strong.   AAA   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.   A+   A  A-   Strong.   BBB+   BBB   BBB-   Good.   BB+   BB   BB-   Moderately Weak.   B+   B  B-   Weak. CCC   CC   C  D  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   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.   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.   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.     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.   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.   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.      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.  
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