ICRA Nepal assigns Grade 4+ rating to the 60% right shares of Prudential Insurance; Company issuing 38.49 lakh units right shares

ICRA Nepal has assigned [ICRANP] IPO Grade 4+, indicating below-average fundamentals to the proposed rights issue amounting to ~NPR 385 million of Prudential Insurance Company Limited (PICL). PICL has proposed a 60% rights issue of 3,849,120 numbers of equity shares of face value NPR 100 each, to be issued to the existing shareholders at par. The proposed rights issue is being made to comply with the revised minimum paid up capital requirement for general insurers as prescribed by the Insurance Board of Nepal. 

Strengths and opportunities

• Adequate track record in the industry (operating since 2002) and its experienced board and management team.
• Adequate reinsurance arrangements, including catastrophic provisions and good profile of the lead reinsurer, which provides comfort to its claims-paying ability and its ability to maintain solvency during catastrophic events like the April 2015 earthquake.
• Improved investment outlook for PICL, given the hardening of the interest rate across the banking sector deposits, wherein a major portion of its investment portfolio is concentrated.

Weaknesses and threats

• Decline in market share over the last two to three years (~5% of industry GPW³ in FY2019 down from ~7% in FY2017) and its moderate underwriting performance characterized by a high claims ratio on a sustained basis.
• Premium growth rate has lagged behind the industry average for the last two to three years, affecting its scale of operations vis-àvis the industry peers. This remains a concern, especially in the recent regime of declining premium tariffs and increasing liability cover for the major segments like fire and motor.
• A slower growth in premium, coupled with a high claims ratio and high management expense ratio has lowered the underwriting surplus of the company in the last two to three years.
• Incremental growth and the return prospect of PICL are likely to be determined by its ability to grow the customer base, premium earnings and scale up the business.

Source: ICRA Nepal