Kathmandu: ICRA Nepal has upgraded the issuer rating of Citizen Life Insurance Company Limited (CLICL) to [ICRANP-IR] BBB (pronounced ICRA NP Issuer Rating triple B) from [ICRANP-IR] BBB- (pronounced ICRA NP Issuer Rating triple B minus). Such issuers are considered to have moderate degree of safety regarding timely servicing of financial obligations.
The rating upgradation factors in CLICL’s healthy premium growth including the growth in the first year premium, which underscores the company’s good market positioning. The rating upgradation also considers the company’s improved policy continuation rate (87% in FY2021 vs. 72% in FY2020 in terms of premium, its recent increase in market share in the industry premium and its adequate solvency profile. Going forward, CLICL’s strong franchise network (148 network points across the country as of mid-March 2022), its adequate solvency profile and experienced promoters and management team augur well for future business growth.
Low penetration of the insurance sector in Nepal also offers growth potential to the new players like CLICL. The rating also takes into consideration, quality investment profile with decent returns, and the company’s adequate reinsurance arrangements, including catastrophic provisions, which provides comfort to its claims-paying ability and its ability to maintain solvency in the event of catastrophic events.
Similarly, a high proportion of endowment business in the overall premium earnings (~92% in FY2021 and ~90% in H1 FY2022), and the company’s ability to contain business acquisition cost and management expenses within the regulatory ceiling even during the initial years of operation, also remain rating positives.
ICRA Nepal mentions, “However, the rating remains constrained by CLICL’s limited track record (operating since October 2017) and the
fragmented life insurance industry (comprising of 19 LICs). As such, the management’s ability to sustain its financial and operational numbers over a longer timeframe remains untested. ICRA Nepal also notes a marginal uptick in the death claims of the company in FY2021, emanating from term policies. The ability of the company to implement adequate underwriting controls to keep such uptick in check, will also remain a key monitorable.”
“The lag in the preparation of actuarial evaluation report by the life insurers in general (including CLICL) also remains a concern as the latest solvency position and the impact of recent business strategies on the solvency profile can only be ascertained after a time lag of 18-24 months. This also remains a rating limitation.”