Care Rating Nepal assigns CARE-NP IPO Grade 4 to proposed 240% right issue of United Insurance

Care Rating Nepal  CRNL has assigned grading of ‘CARE-NP IPO Grade 4 [IPO Grade Four]’ to the proposed Rights Share Issue of United Insurance Company (Nepal) Limited (UIC). ‘CARE-NP IPO Grade 4’ indicates Below Average Fundamentals.

CRNL assigns IPO grades on a scale of Grade 1 to Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. CRNL’s IPO grading is an opinion on the fundamentals of the issuer. The grade assigned to any individual issue represents a relative assessment of the ‘fundamentals’ of the issuer. UIC proposes 240% rights share issue of 72.57 lakh equity shares of face value of Rs.100 each at par aggregating Rs.72.57 crore.

The grading assigned to the rights share issue of UIC is constrained by action taken by Insurance Board of Nepal to halt the fire business of the company, volatile net underwriting profit & net profit over the period impacting Combined Ratio, substantial decline in Gross Premium Written (GPW), however, improvement in profit during 9MFY18 (refers as 9 months ended April 13, 2018) over 9MFY17, negative reserve and surplus at the end of the last two financial years ended July 15, 2017 (refers as FY17) as well as on April 13, 2018, although recovered substantially over the period, volatile investment income, concentration on motor segment and competition from other insurance companies & relatively small market share in the non-life insurance industry in Nepal.

The grading, however, derives strength from long track record and strong promoter group, experienced Board and Management team, good assets quality of investment book and moderate solvency ratio. Continued parentage and support, solvency position and ability of the company to grow and maintain the profitability after the latest decision by IB to halt the fire insurance business would be the key grading sensitivities.