ICRA Nepal reaffirms the issuer rating ‘ICRANP-IR BB+’ for Prabhu Life

Kathmandu: ICRA Nepal has reaffirmed the issuer rating of [ICRANP-IR] BB+ (pronounced ICRA NP Issuer Rating Double B plus) to Prabhu Life Insurance Limited (PLIL).

The press release issued by ICRA Nepal,a rating agency, mentions that ‘Issuers with such rating are considered to have moderate risk of default regarding timely servicing of financial obligations. The sign of + (plus) or – (minus) appended to the rating symbols indicate their relative position within the rating categories concerned. Thus, the rating of BB+ is one notch higher than BB.’

Prabhu Life Insurance has high concentration on endowment plans which covers around 93 percent of its business profile. Endowment plans are supposed to be long-term liability for the life insurers.

ICRA Nepal has mentioned that Prabhu Life has been able to improve its policy continuation rate. PLIL’s policy continuation rate improved to ~78%1 renewal in FY2021 in terms of premium (~70% in FY2020).

PLIL has small-scale operations, which covers only ~5% share among 10 new players in terms of premium earnings in FY2021. Further, ICRA Nepal mentions that due to regulatory provisions for the 100 percent provisioning of future bonus by 2025 is likely to lower the returns to shareholders as the surplus profit will be transferred to policyholders’ bonus account. The company has made an arrangement of 37 percent in FY 2020 for future bonus provision.

‘The company had total investment of NPR 3,918 million as of mid July 2021, which was dominated by FDRs and debentures of class-A banks at ~68%, and the balance by the FDRs in class B banks (~14%), shares in the listed companies and call deposits in BFIs, each having 9% shares. PLIL’s net investment income stood at ~NPR 471 million in FY2021 (~NPR 194 million in FY2020), corresponding to the average investment yield of ~14.2% (~9.5% in FY2020). The investment yield for FY2021 remained benefitted by capital gains on equity investment amid the increasing trend in the stock market (NEPSE). The company realized gain of ~NPR 246 million from disposal of shares during FY2021.’

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