Pak-Qatar Family Takaful Limited: PACRA Rating Report

Transcription

1. The Pakistan Credit Rating Agency Limited Rating Report Report Contents Pak-Qatar Family Takaful Limited Dissemination Date 21-Jun-2019 27-Dec-2018 12-Jun-2018 06-Dec-2017 23-Jun-2017 Long Term Rating A + A+ A+ A A Rating History Short Term Rating - 1. Rating Analysis 2. Financial Information 3. Rating Scale 4. Regulatory and Supplementary Disclosure Outlook Stable Stable Stable Positive Positive Action Maintain Maintain Upgrade Maintain Maintain Rating Watch - Rating Rationale and Key Rating Drivers The rating reflects sustained market position of the company, having decent foothold in takaful industry. The company's business volumes have sagged, however the company remains the market leader in family takaful segment. The company benefits from its brand as being the dedicated takaful company having significant size. Moreover, after having established branch network, PakQatar Family is gradually expanding wings through alternate distribution networks; wherein the success remains to be seen. Meanwhile, competition from window takaful needs better management. The profitability of the company has remained strong as compared to peers, reflecting strong business profile. The financial risk profile has been strengthened based on several fresh injection of equity. Pak Qatar Family Takaful has sustained its liquidity coverage to policyholder’s liabilities The rating depends upon the company's ability to improve its market share while improving the persistency of Gross Contribution. Product diversification in non-banca segments should be translated into size-able volumes with enhanced profitability. Meanwhile, financial metrics need to continuously improve. Disclosure Powered by TCPDF (www.tcpdf.org) Name of Rated Entity Pak-Qatar 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 Rohail Amjad | rohail.amjad@pacra.com | +92-42-35869504
2. Life Insurance The Pakistan Credit Rating Agency Limited Profile Legal Structure PakQatar Family Takaful Limited (PQFTL) is an unquoted public company Background Pak-Qatar Family Takaful Limited (PQFTL) started its operations in Aug-07 Operations The company’s business is categorized under the umbrella of three statutory funds i.e (i) Individual Family – plans sold through DSF and Banka-Takaful as unit linked plans and Decreasing Term Assurance (DTA) as non-linked plans, (ii) Group Family, and (iii) Group Health. Ownership Ownership Structure Major shareholding in the hands of (i) Mr. Said Gul & his associated company (4% via individual and 35% via Pak-Qatar Investment (Private) Limited), (ii) Two Qatar based Financial Institutions (21%), and (iii) H.E. Sheikh Ali Bin Abdullah Al-Thani - belongs to Qatar's Royal Family (10%). Technical partner is FWU AG (15%), a German based firm having operations in Europe and Middle East, maintains permanent establishment in Pakistan - by virtue of this technical arrangement stability. Stability There has been no change in the ownership structure recently Business Acumen Two Qatar based financial institutions have shareholding in PQFTL, these are; i) Qatar International Islamic Bank (rated A+ by Fitch and Capital Intelligence) is majorly owned by Ezdan Holding group and Qatar Investment Authority ii) Qatar Islamic Insurance Company (rated BBB+ by A.M. Best) is the 6th largest insurance company in Qatar insurance sector and 2nd largest in takaful. Financial Strength PQFTL’s synergy relationship with FWU AG is guided by and properly documented in “Cooperation Agreement”. This bodes well for the overall profile of the company. The agreement allows PQFTL to use (i) customised Banca product (mutually developed by PQFTL and FWU AG), (ii) FWU’s Sales & Administration System (SIS), and (iii) FWU’s services of acquiring the distribution partner. FWU maintains permanent establishment in Pakistan employing 26 individuals (including a sales team of ~15), to facilitate and train banks’ officials selling FWU’s products Governance Board Structure Pak-Qatar Family has a seven-member board including Mr. Said Gul who has been associated with the company since inception and holds a vital position between the board of directors and management of Pak-Qatar Family. Mr. Gul also represents Pak Qatar Investment (Pvt.) Limited in the capacity of Director as representative on the board of Pak-Qatar Family. Members’ Profile H.E. Sheikh Ali Bin Abdullah Al-Thani (H.E. Ali), royal family member, is chairman of the board, while Mr. Said and FWU has one representation each Board Effectiveness The participation of two board members remained full; Mr. Said Gul and Mr. Zahid Hussain. This is mainly because Mr. Gul & Mr. Zahid endeavour to ensure remaining board members also participate in the board meetings. Pak-Qatar Family’s Board meeting are held inside Pakistan as well as outside Pakistan depending upon directors availability. Financial Transparency The auditors of the company, EY Ford Rhodes, Chartered Accountants, issued an unqualified audit report pertaining to annual financial statements for CY18. Management Organizational Structure The management team of the company comprises qualified and experienced professionals. The organizational structure is well laid down. The management has four committees i) Underwriting Committee ii) Re- takauful Committee iii) Claims Committee & iv) Risk Management and Compliance Committee. Management Team Mr. Said Gul being founding Member & Director, plays the role of a bridge on behalf of the board, in liaison through three key individuals – Chief Executive Officer (CEO), Chief Financial Officer (CFO), and Chief Internal Auditor (CIA). Mr. Nasir Ali Syed, the CEO of the company since 2012, carries more than two decades of experience in the insurance industry. Effectiveness An online MIS is provided to Mr. Gul that keeps him updated with the progress of the company. Further, the company’s information is available in real time to the CEO. Claim Management System The claims of policyholders on the Waqf are entered into the system after intimation/notification by the customer. Three claim Forms (in standard format); i) Claimant’s Statements, ii) Physician’s Statement, and iii) Employer’s Statement – only in case of Group Takaful, is required to be filled and signed respectively. The claim on Waqf can be broadly categorized into Death Claims, Critical Illness and Disability. Investment Management Function PQFTL has a formal investment policy document approved by BoD and Shariah Board, reviewed annually. The company maintains IPS for three funds separately – PTF, PIF, and SHF. The IPS incorporates separate investment strategies for each of the unit-linked fund within PIF – BT Growth, BT Conservative, Aggressive, Balanced, Conservative and Secure Wealth Fund Risk Management Framework The company has developed a detailed underwriting manual and guidelines are issued to the branches and updated from time to time. An underwriter’s authority limit is assigned by CEO/COO on the basis of experience and qualification of each individual separately Business Risk Industry Dynamics Life insurance sector has seen steady growth in recent years (CAGR 3years: 12%), wherein the public sector has seen relatively high growth. Private sector brought innovative life solution, mainly bancassurance – a sum of both saving plans and nominal life cover. Investment portfolios of life insurers are skewed towards government securities (primarily PIBs). Although Interest rate increase brought revaluation losses. Relative Position PQTFL is the largest dedicated takaful operating company in Pakistan, having 3% market share in Life Insurance Sector. In terms of Takaful Operators PQTFL is the largest life insurer with the majority market share ~ 86%. Holding on to its portfolio is important. Persistency The company has first-year persistency ratio of 61% and 79% in second year at end Dec-18 (Dec-17: First year Persistency 74%, Second year Persistency 89%). Revenue The company posted a top line of PKR 7.8bln at end Dec-18 ( Dec-17: 8.2 PKRbln). The individual family takaful comprised 77% of the total GPW followed by group business( 23%). The individual family takaful reduced by 7% on account of increased competition in the industry especially due to takaful windows though, the group businesses grew by 24%. Profitability The company posted a profit of PKR 107mln as against the profit of PKR126mln. The decline is on account of prudent underwriting and the dip in the persistency, Investment Performance At Year end Dec-18, the investment income from Statutory fund stood at PKR28mln (CY17: PKR16mln) on account of improved return on bank deposits amidst rising interest rate. Sustainability Going forward, the company envisages continued business growth targets while focussing on gradual upward profits. To improve persistence, the company has formulated various marketing techniques, thereby increasing client retention Financial Risk Claim Efficiency The claim ratio improved to 66% at end Dec-18 ( Dec17: 71.5%, Dec 16: 68%). The claims ratio for individual family improved to 23% (Dec 17:26.6%), whereas the group health showed an improvement, reducing to 73% from 81% at end Sep-18. The Claims ratio for Group Family remained stable at 58% Re-Insurance Pak-Qatar Family is strengthened by its Re-Takaful arrangements with Munich Re (AA- by S&P) , Hannover Re (AA- by S&P) & Hannover Re-Takaful Catastrophic arrangements provide the company with cushion to absorb unforeseen risks Liquidity The liquidity remains stable at 1x at end Dec-18 ( Dec17: 1.1x, Dec 16: 1x) amidst the rise in liquid assets. Capital Adequacy The company has a paid-up capital of above PKR 1.3bln, well above the MCR whereas the net equity was PKR1.47bln at end Dec-18 Pak-Qatar Family Takaful Limited Rating Report Jun-19 www.PACRA.com
3. Family Takaful Financials [Summary] Pak Qatar Family Takaful Limited BALANCE SHEET Investments Liquid Investments 30-Dec-18 31-Dec-17 31-Dec-16 19,811 17,492 14,676 717 1,368 588 968 485 1,246 TOTAL ASSETS (SHF + PTF) 21,896 19,048 16,407 Equity Balance of Takaful Statutory Funds Insurance Related Liabilities Other Liabilities TOTAL EQUITY & LIABILITIES (SHF + PTF) 1,468 19,547 707 174 21,896 1,137 17,217 547 147 19,048 785 14,881 544 197 16,407 Insurance Related Assets Other Assets INCOME STATEMENT 30-Dec-18 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 7,817 (4,503) (373) (1,146) (1,192) (319) 28 (127) 184 PROFIT AND LOSS (INCLUDING SHAREHOLDERS FUND) Profit/(Loss) before Tax RATIO ANALYSIS 31-Dec-17 8,263 (5,186) (356) (1,243) (1,057) (298) 16 (32) 108 155 30-Dec-18 31-Dec-16 7,494 (4,316) (392) (1,470) (896) (223) 25 (101) 120 174 31-Dec-17 166 31-Dec-16 Underwriting Results Claims Ratio - PTF Combined Ratio 66% 91% 71% 94% 68% 93% Performance Operating Ratio Investment Yield (SHF + PTF+PIF) 90% 3% 93% -2% 92% 10% 1.0 1.1 1.0 Liquididity & Solvency Liquidity Ratio – times Pak Qatar Family Takaful Limited 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.  
5. Regulatory and Supplementary Disclosure (Credit Rating Companies Regulations,2016) Rating Team Statements (1) Rating is just an opinion about the creditworthiness of the entity and does not constitute recommendation to buy, hold or sell any security of the entity rated or to buy, hold or sell the security rated, as the case may be | Chapter III; 14-3-(x) 2) Conflict of Interest i. The Rating Team or any of their family members have no interest in this rating | Chapter III; 12-2-(j) ii. PACRA, the analysts involved in the rating process and members of its rating committee, and their family members, do not have any conflict of interest relating to the rating done by them | Chapter III; 12-2-(e) & (k) iii. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)] Explanation: for the purpose of above clause, the term “family members” shall include only those family members who are dependent on the analyst and members of the rating committee Restrictions (3) No director, officer or employee of PACRA communicates the information, acquired by him for use for rating purposes, to any other person except where required under law to do so. | Chapter III; 10-(5) (4) PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during business relationship with the customer | Chapter III; 10-7-(d) (5) PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of entity subject to rating | Chapter III; 10-7-(k) Conduct of Business (6) PACRA fulfills its obligations in a fair, efficient, transparent and ethical manner and renders high standards of services in performing its functions and obligations; | Chapter III; 11-A-(a) (7) PACRA uses due care in preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verifies or validates information received in the rating process or in preparing this Rating Report. (8) PACRA prohibits its employees and analysts from soliciting money, gifts or favors from anyone with whom PACRA conducts business | Chapter III; 11-A-(q) (9) PACRA ensures before commencement of the rating process that an analyst or employee has not had a recent employment or other significant business or personal relationship with the rated entity that may cause or may be perceived as causing a conflict of interest; | Chapter III; 11-A-(r) (10) PACRA maintains principal of integrity in seeking rating business | Chapter III; 11-A-(u) (11) PACRA promptly investigates, in the event of a misconduct or a breach of the policies, procedures and controls, and takes appropriate steps to rectify any weaknesses to prevent any recurrence along with suitable punitive action against the responsible employee(s) | Chapter III; 11-B-(m) Independence & Conflict of interest (12) PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has no influence on PACRA´s opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity and independence of its ratings. Our relationship is governed by two distinct mandates i) rating mandate - signed with the entity being rated or issuer of the debt instrument, and fee mandate - signed with the payer, which can be different from the entity (13) PACRA does not provide consultancy/advisory services or other services to any of its customers or to any of its customers’ associated companies and associated undertakings that is being rated or has been rated by it during the preceding three years unless it has adequate mechanism in place ensuring that provision of such services does not lead to a conflict of interest situation with its rating activities; | Chapter III; 12-2-(d) (14) PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA; | Reference Chapter III; 12-2-(f) (15) PACRA ensures that the rating assigned to an entity or instrument is not be affected by the existence of a business relationship between PACRA and the entity or any other party, or the non-existence of such a relationship | Chapter III; 12-2-(i) (16) PACRA ensures that the analysts or any of their family members shall not buy or sell or engage in any transaction in any security which falls in the analyst’s area of primary analytical responsibility. This clause shall, however, not be applicable on investment in securities through collective investment schemes. | Chapter III; 12-2-(l) (17) PACRA has established policies and procedure governing investments and trading in securities by its employees and for monitoring the same to prevent insider trading, market manipulation or any other market abuse | Chapter III; 11-B-(g) Monitoring and review (18) PACRA monitors all the outstanding ratings continuously and any potential change therein due to any event associated with the issuer, the security arrangement, the industry etc., is disseminated to the market, immediately and in effective manner, after appropriate consultation with the entity/issuer; | Chapter III | 18-(a) (19) PACRA reviews all the outstanding ratings on semi-annual basis or as and when required by any creditor or upon the occurrence of such an event which requires to do so; | Chapter III | 18-(b) (20) PACRA initiates immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating; | Chapter III | 18-(c) (21) PACRA engages with the issuer and the debt securities trustee, to remain updated on all information pertaining to the rating of the entity/instrument; | Chapter III | 18-(d) Probability of Default (22) PACRA´s Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e, probability). PACRA´s transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be obtained from PACRA´s Transition Study available at our website. (www.pacra.com). However, actual transition of rating may not follow the pattern observed in the past | Chapter III | 14-(f-VII) Proprietary Information (23) All information contained herein is considered proprietary by PACRA. Hence, none of the information in this document can be copied or, otherwise reproduced, stored or disseminated in whole or in part in any form or by any means whatsoever by any person without PACRA’s prior written consent Powered by TCPDF (www.tcpdf.org)