Republic Insurance Company Limited - Credit Rating Agency of ...

CRAB Ratings
General Insurance
Rating Report (Surveillance)
Republic Insurance Company Limited
Ratings
Previous Ratings
Long Term : BBB 3 Long Term : BBB 3
Short Term : ST-3 Short Term : ST-3
Date of Rating : 31 December 2009 Date of Rating : 21 December 2008
Validity : 30 June 201010
Analyst
Fareba Naz Shaule
Financial Analyst
fareba.naz@crab.com.bd
1.0 RATIONALE
Financial Highlights
BDT in million
Particulars 2008 2007
Gross Premium 166.68 129.57
Net Premium 98.60 87.19
Underwriting Profit 5.16 10.72
Pretax Profit 22.21 14.12
Paid up Capital 150.00 60.00
Shareholders’ Equity 168.97 69.26
Investment 89.58 81.56
Investment Yield 26.42% 9.73%
Combined Ratio 107.59% 98.68%
Return on Average Assets 8.94% 8.60%
Risk Retention Ratios 59.15% 67.29%
Current Ratio (times) 1.96 1.53
180
160
140
120
100
80
60
40
20
25
20
15
10
5
-
0
53.71%
34.84%
83.03%
6.22%
2004 2005 2006 2007 2008
90%
80%
70%
60%
50%
40%
30%
20%
13.08%
10%
Gross Premium Net Premium Growth in Net Premium
4.81
5.56
2.36 2.30
6.38
3.87
14.12
10.72
22.21
5.16
2004 2005 2006 2007 2008
Underwriting Profit Pretax Profit
0%
Credit Rating Agency of Bangladesh Limited
(CRAB) has retained BBB 3 (Triple B three) rating
in the long term and ST-3 rating in the short
term of Republic Insurance Company Limited
(hereinafter referred to as ‘RICL’ or ‘the
Company’). The rating analysis was based on the
audited financial statements for the year ended
2008 and other relevant information.
Insurance Companies rated ‘BBB 3 ’ have good
financial security characteristics, but are more
likely to be affected by adverse business
conditions than higher rated insurers. Insurance
Companies rated ‘ST-3’ have an adequate ability
to meet their financial commitments on shortterm
policy obligations. However, adverse
economic conditions or changing circumstances
are more likely to lead to a weakened ability of
the insurers to meet their financial obligations.
The rating takes into account both quantitative
and qualitative indicators which include market
share, growth potential, corporate governance,
underwriting quality, claim paying ability,
profitability, capital adequacy, investment
performance and liquidity. The solvency status,
re-insurance capacity of the Company and
adequate reserve base are also key drivers of
rating analysis.
RICL’s gross premium has increased by 28.63%
to BDT 166.68 million from 129.57 million in
2008 whereas gross claim has increased by
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CRAB Ratings
General Insurance
139.57% to BDT 46.01 million from BDT 19.20 million in 2007.
In 2008 RICL’s combined ratio has increased to 107.59% from 98.68% as the loss ratio has
increased to 25.24% from 8.41% due to 239.28% increase in net claim. On the other hand,
RICL was able to decrease its expense ratio to 82.35% from 90.27% in 2007.
In 2008 the underwriting Profit decreased by 51.89% to BDT 5.16 million from BDT 10.72
million in 2007. For last five years the net profit before tax of RICL shows an increasing
trend. In 2008 RICL’s net profit before tax increased by 57.27% to BDT 22.21 million from
BDT 14.12 million in 2007. The ROAA of RICL increased to 8.94% from 8.60% in 2008 due
to increase in both profit before tax and total asset of the Company. On the other hand, the
ROAE decreased to 18.64% from 21.28% due to high growth in shareholders’ equity
compare to profit before tax.
RICL follows a conservative investment policy as 99.35% of total investment was made in
national investment bond and in fixed deposits. In 2008 the investment & other income of
RICL increased by 198.31% to BDT 23.66 million from BDT 7.93 million in 2007. As a result
of which the investment yield has increased to 26.42% from 9.73% in 2007.
RICL has a strong Board of Directors who has sufficient exposure to diversify industrial
sectors though the Company is yet to incorporate an independent director in the Board.
During this period RICL did not bring any mentionable change in the management and
management information system. Due to small structure of the Company there has been
lack of standardized internal control system.
In October 2008 the Company raised its paid up capital to BDT 150 million from BDT 60
million through Initial Public Offering (IPO). On the other hand, the reserve for exceptional
loss has increased by 105.56% to BDT 18.97 million from BDT 9 million in 2007. As a result
of which the shareholders equity has increased by 143.96% to BDT 168.97 million from BDT
69.26 million in 2007.
In 2008 the total management expenses of RICL was BDT 81.19 million which has increased
by 3.16% over that of previous year which was 34.59% excess over the allowable
management expenses.
In 2008 RICL settled an amount of BDT 48.30 million claims (including repudiated claims)
out of BDT 68.57 million claims and BDT 20.27 million claims were outstanding. So the
claim settlement ratio of the Company increased to 70.43% from 67.68% in 2008.
The overall liquidity position during this period has improved. The current ratio has
increased to 1.96 times from 1.53 times in 2008. On the other hand, the proportion of liquid
assets to total assets was 62.48% in 2008 which was 49.20% in 2007. The net claim
payable ability decreased to 11.81 times from 20.90 times in 2007. In 2008 the required
solvency margin was 4.76 times of actual solvency margin which was only 1.39 times in
2007.
In 2008 the Company decreased its retention to 59.15% from 67.29% and to comply with
the insurance act it maintains 40% of net premium as reserve for unexpired risk except for
marine hull where it maintains 100%.
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