In its latest statement, GCR said the rating of Reliance reflects the strengths and weaknesses of the group and its subsidiary, given that the insurer is the core operating entity of the group. In this respect, the rating is underpinned by the group’s very strong risk adjusted capitalisation, intermediate earnings and liquidity.
“Nevertheless, the business profile remains a rating restraint, characterised by an average market position and moderate levels of premium diversification, the GCR report stated adding that risk adjusted capitalisation remained very strong, supported by the recent turnaround in earnings performance.
“As such, the GCR capital adequacy ratio improved to 3.3x last year against 2018 while the statutory CAR remained high at 2.7x against 3.3x in 2018. Going forward, risk adjusted capitalisation could be assessed at similar levels should the recent turnaround in profitability be sustained and contribute to capital growth, considering potential risks emanating from the COVID-19 pandemic,” the report added.
The insurer’s earnings are assessed to be intermediate, taking into account the recent turnaround in underwriting results and enhanced bottom line performance. The turnaround in underwriting profitability was largely driven by a reduction in operating expenses, offsetting a moderate increase in claims incurred, the rating agency noted.
In this regard, the operating expense ratio improved to 45 percent against 77 percent in 2018, while the claims ratio closed higher at 40 percent compared to 34 percent, attributable to an increase in motor commercial claims.
“Resultantly, the group reported an underwriting surplus of 784m/- compared to a loss of 3.2bn/- two years back, translating to an underwriting margin of six percent. This was further supported by healthy investment income, which grew to 2.4bn/-, with the group closing the year with a net profit after tax of 2.5bn/-,” the GCR report explained.
“While note is taken of the reduction in earnings in first six month of this year caused by flood claims incurred in January, the insurer’s ability to sustain earnings turnaround over the rating outlook may be positively viewed,” the report elaborated.
Liquidity was maintained at an intermediate level, supported by conservative asset allocation. Accordingly, cash and stressed financial assets coverage of net technical provisions stabilised at 1.8x at FY19, while coverage of operational cost requirements was sustained at 24 months. Liquidity metrics are expected to measure at similar levels going forward given management’s strategy of maintaining the current asset allocation, the GCR report revealed.