Asia Pacific general insurance - Credit Rating Agency of Bangladesh

CRAB Ratings
General Insurance
Rating Report
Asia Pacific General Insurance Company Limited
Ratings
Long Term : BBB 1
Short Term : ST -3
Date of Rating : 6 February 2008
Validity
: One (1) year
Analyst:
Razib Ahmed
Financial Analyst
01. RATIONALE
Credit Rating Agency of Bangladesh Limited (CRAB) has assigned “BBB 1 ”
(pronounced triple B one) rating in the long Term and “ST-3” in the short Term to
Asia Pacific General Insurance Company Ltd (API).
General Insurance Companies rated in the long Term in “BBB 1 ” category are
adjudged to be solid, characterized by average financials, adequate claims paying
ability, valuable and defensible business franchises, and a stable operating
environment. The level, growth and quality of earnings over the medium term are of
average standard and change in business/economic circumstances, as may be
envisaged, may impair the underlying fundamentals. General Insurance Companies
rated in the Short Term “ST-3” category, are considered to have satisfactory capacity
for timely repayment of obligations, although such capacity may impair by adverse
changes in business, economic, or financial conditions. Companies rated in this
category are characterized with satisfactory level of liquidity, internal fund
generation, and access to alternative sources of funds.
CRAB performed the present rating assignment based on the audited financial
statements of 31 December 2006 and other relevant information. 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 reinsurance
capacity of the company, solvency status and adequate reserve base are
also key drivers of rating.
Asia Pacific General Insurance Company Ltd started its operation in FY 2000. During
FY 2006, the company’s net premium increased at 19.62% with very low claim
settlement ratio of 5.47% due to 2 large claims for BDT 132.33 million was pending
for approval of Sadharan Bima Corporation. API’s low expense level, which compares
positively with that of other private sector general insurance companies in the
country, helps to absorb claim losses. As a result, the company reported its combined
ratio below 100% for the last four years, which also reveals API’s attempt to keep its
management expenses under control.
CRAB considers API’s source of revenue, where major portion of revenue comes from
investment income and this income increased to 113.7% during FY 2006. However,
Page 1 of 3

CRAB Ratings
General Insurance
revenue from company’s core business, which is underwriting profit, is only 25% of
total revenue. API should take initiative to modify its revenue pattern by grabbing
more insurance business.
KEY FINANCIAL INDICATORS 2006 2005 2004
Gross Premium 89.42 70.06 52.52
Net Premium 46.35 38.75 31.23
Underwriting Profit 7.70 7.08 6.37
Net Profit (before tax) 26.59 14.41 11.33
Paid up Capital 175.00 175.00 70.00
Shareholders Equity 192.30 187.71 70.30
Investment 212.20 191.40 82.00
Investment Yield 10.73% 5.57% 8.82%
Combined Ratio 99.58% 95.50% 73.49%
Return on Average Assets (ROAA) 10.18% 7.85% 10.22%
Current Ratio (times) 4.29 4.18 2.55
Risk Retention Ratios 51.84% 55.31% 59.45%
Although Asia Pacific General Insurance
Company Ltd has experienced
insurance professionals at the top
management, the company is yet to
have a competent mid level
management mainly due to relatively
small size of the organization. Due to
same reasons, there has been lack of
standardized internal control and
management information system
(MIS). The IT infrastructure of the
company is in the primary stage and
API is yet to adopt a computerized
system and integrated software for
accounting, underwriting, claims and
reinsurance.
The rating also considers the sponsor
support of the company. Mr. A.H.M
Mustafa Kamal, a chartered accountant
and former Member of national
Parliament is the founder chairman of
API. He is also the chairman of the LK
Group. The rest of the Board members
are also qualified and experienced in
their respective fields. There is no
independent director in the Board
though SEC has instructed listed
companies to do so.
Solvency Margin of API declined to
14.33 times in FY 2006 from 17.19
times in FY 2005; however the position
is still at a commendable level. The
liquidity position of the company
remained at satisfactory level. The
Page 2 of 3

CRAB Ratings
General Insurance
current assets stood at BDT 248.52
million in FY 2006, which is 4.29 times
higher than company’s current
liabilities.
The company’s retention rate is in
declining trend from the FY 2004 reach
to 51.84% in FY 2006. From the very
beginning, API maintained required
technical reserve as per Insurance Act
1938. In addition to such reserve, the
company also maintained BDT 11.50
million as exceptional losses and BDT
5.50 as reserve fund which was
cumulative over the years.
During FY 2006, the company declared
10% dividend for its shareholders. The
management have plan to give at least
10% dividend each year in future. For
that purpose, API maintains reserve of
certain amount from its profit.
Page 3 of 3