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The Pakistan Credit Rating Agency Limited

Date
06-Dec-2017
Analysts
Jhangeer Hanif
jhangeer@pacra.com

Iqra Bashir
iqra.bashir@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • General Insurance and Takaful Operator (Jun 16) [View]
  • Methodology | Insurer Financial Strength (IFS) Rating | General (Jun 17) [View]

Related Research

  • Sector Study | Insurance | General (Oct 17) [View]
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PACRA Maintains Entity Rating of IGI Insurance Limited
 Rating Type Insurer Financial Strength(IFS)
Current
(06-Dec-2017-)
Previous
(21-Jun-2017)
 Action Maintain Maintain
 IFS Rating AA AA
 Outlook Developing Rating Watch
 Rating Watch ✔ ✔

The rating draws comfort from the investments-holding company structure of IGI Insurance. This, while generating non-core revenue stream, provides strong risk absorption capacity to the company, engendering high level of resilience and flexibility against varied risks. The company continued to march on growth trajectory, invariably in all segments, while maintaining diversification of premium mix. Advanced IT platform supports efficient operations, particularly superior claims handling system. Comfort is drawn from the sound governance practices of the group.
The rating is placed on rating watch, with developing status. The sponsors of IGI group intend to redesign the overall structure of its multiple businesses engaged primarily in the ambit of financial services. Formation of a financial services Holding Company (Holdco) structure is proposed. A two-step transaction is envisaged which comprises of i) merger of IGI Investment Bank Limited (IGI IBL) with and into IGI Insurance company (IGI) and ii) de-merger of Insurance division and certain investments along with corresponding liabilities held by IGI Insurance into IGI General Insurance Ltd. and IGI Investments (Private) Limited respectively. The merger and de-merger would be under share swap arrangement; whereby shareholders of IGI IBL will be issued IGI’s shares according to a swap ratio of 1:92, while swap ratio of hived down insurance entity is yet to be decided. The Company has filed a petition for sanctioning of the Scheme of Amalgamation under Sections 284 to 288 of the now repealed Companies Ordinance, 1984 in the High Court of Sindh for approval of merger and then de-merger. The hearing has been smooth in the Sindh High Court. There was no major challenge as such and the court has reserved the order which is yet to be announced. The merger of IGI IBL with and into IGI have minimal impact on profile of IGI, due to its small size (1.6% of merged entity). However, hived-down of insurance would change the entire corporate structure, and, hence, would necessitate rating review. The de-merger to form a holding company will bring further focus to the group’s strategy to deliver various financial services. PACRA would continue to monitor these developments and the rating would be updated accordingly.
About the Entity
IGI Insurance Limited (IGI), established in 1953, is engaged in offering general insurance services. IGI, listed on Pakistan Stock Exchange, is the flagship company of the Packages Group. Currently, the company, in addition to underwriting insurance business, acts as an investments-holding company of the group. The packages group including Babar Ali Family holds ~62% stake in the company. The Packages Group ranks among the larger industrial groups of the country, having diversified interests in packaging, dairy, pharmaceutical, and financial sectors. IGI has not announced its financial results since Dec 16.

Eight-member Board of Directors - comprises two independent directors, one executive director who is also CEO of the company and five non-executive directors representing the main sponsoring family. Syed Babar Ali is the Chairman of the board. The board comprises seasoned professionals with a diverse portfolio of experiences. Mr. Chaudry Tahir Masaud, CEO, is an ACII and MBA from LUMS, having diversified national and international insurance related experience of over 20 years.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.
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