Know in details about the fundamentals of Nepal Reinsurance Company Limited

Sector: Others

Symbol: NRIC

No. of Outstanding Shares: 100,000,000 units

Introduction

Nepal Reinsurance Company Limited (Nepal Re.) is the only Reinsurance company in Nepal which was incorporated on 7 November 2014 under the Company Act, 2006. Nepal Reinsurance was formally inaugurated on 22^nd December 2014. The company primarily established with the aim to cover the damages caused by terrorism. (Source: https://nepalre.com.np/)

Financials:

 (-* Not Provided in the quarterly Report)

Having its business restricted only to the RSTMD (Riots, Sabotage, and terrorism risk) cover till FY2016, it did not have much effect in its business but later as per announced by the Government of Nepal to have reinsured 20% of the risk of all the domestic insurers, it has given a boost to the company’s growth and profitability. Since Nepal Re is sole Reinsurance company in Nepal the regulation to cede certain portions of the risk will definitely support the growth in the foreseeable future. The company has been able to collect Gross Premium Written (GPW) of 4.23 Arba till FY2019. The company’s Premium retention ratio in FY2019 stood at 78% vs 82% in FY2018.

Similarly, the company’s Gross Premium Written (GPW) from Non-life insurance has been growing at a compounded annual growth rate (CAGR) of 30.68% which for a company with a monopolistic market a very good growth. Also, GPW of Life Insurance is growing at a CAGR of 68.43%.

Over the past 3-years, Nepal Re’s portfolio is covered by the general insurance business with about 90-95% and remaining has come from the Life insurance business. In the FY2019, about 43% GPW came from the Motor segment, 26% came from the Fire segment, 12% came from the Marine segment, 8.8% came from Cattle and the Agro segment, 6.5% came from the miscellaneous segment and rest 3.7% came from Engineering segment. The Premium retention ratio also remains high in all the segments.

Key Ratios:

Since the minimum requirement of the solvency margin is 1.50x, the company has been able to maintain a healthy solvency margin of 2.19x. This adequate solvency profile has also contributed to the claims-paying ability of the Nepal Reinsurance company.

Since the company has a higher premium retention ratio and lower claims ratio of 32% in 2074/2075, it has supported the underwriter performance of the company.

Considering its early years of operation, it has shown remarkable efficiency in profitability. Over the last 3-years, the company has been able to report its Return on Equity of 8-10%. Similarly, its Return on Assets has hovered around 6-8%.

Since the regulatory body has mandated the 20% cession to Nepal Reinsurance by all the insurance businesses, we can expect in higher growth in the future.

The investment income has also shown positive growth in the company which has supported its profitability. Of the total investment by the company, its investment is highly concentrated in a fixed deposit which is earning a good amount of return being a net depositor.

Risks:

Nepal Reinsurance faces threats from other established international Reinsurance companies offering their services in Nepal. Since about 44% of the stake is owned by the government, it is prone to change in regulatory norms.

Also being benefitted mostly by the domestic market, it also faces the geographical risk.

Conclusion:

Since the devastating earthquake of 2015, causing many deaths and destruction of properties, many people have been conscious of their life and their properties and they are leaning more towards the safes side(insurance) which shows there is a big room for the growth of Nepal Reinsurance Company Limited.

Given that 75% of the population still has not insured, with better schemes and better facilities, insurance companies have yet to attract the remaining population. The increase in premium in Insurance Companies have a direct impact on Reinsurance business, and that many people have yet to insure, Nepal Reinsurance holds a good future. The acceptability from the foreign insurance companies has also been increasing which has contributed to the positive growth in the future.