ICRA Nepal assigns grade 3 to the proposed 60% rights issue of National Life Insurance Company

ICRA Nepal has assigned “[ICRANP] IPO Grade 3” indicating average fundamentals to the proposed rights issue amounting Rs 99.4 crore of National Life Insurance Company Limited (NLICL). NLICL has proposed 60% rights issue of 9,936,477.54 number of equity shares each with face value of Rs 100, to be issued to the existing shareholders at par. The proposed issue is being made to comply with the revised capital requirement for life insurers rolled out by the Insurance Board of Nepal (the regulator). The grading factors in NLICL’s long track record (operating since 1988), fair market positioning as reflected in 13% industry share in gross premium written (GPW) in FY2017 and adequate franchise network of the company (99 branches across the country). The grading also factors in NLICL’s steady business growth (CAGR 23% growth in gross premium during FY2014-FY2017), backed by strong growth in first year premium (CAGR 44% over the same period), indicating good competitive positioning. NLICL has strong presence in profitable endowment segment and has sizeable life fund of over NPR 17 billion (as on mid-July 2017). Improvement in fresh premium earnings augurs well for the growth of life fund which has a bearing on incremental prospects of policy holders as well as shareholders of the company. The grading also factors in adequate reinsurance arrangements including catastrophic coverage provision, experienced senior management and established underwriting norms. ICRA Nepal also takes note of the negligible impact of the April 2015 earthquake on NLICL’s solvency and claims paying ability. However, assigned grading remains constrained by relatively smaller asset size and fund base for its age. Single premium products of NLICL has fared moderately over the years (CAGR growth of 5% during FY2014-FY2017), offsetting the benefits of high growth in instalment based first year premium. This is a drag to incremental shareholders return, which is based on the size and performance of life fund. ICRA Nepal assigns IPO grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. For the grading categories 2, 3 and 4, the sign of + (plus) appended to the grading symbols indicate their relative positioning within the grading categories concerned. Thus, the grading of 2+, 3+ and 4+ are one notch higher than 2, 3, and 4 respectively.