RAM upgrades Janashakthi Insurance’s ratings to A; Outlook is Stable
Monday, 27 January 2014 00:02
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RAM Ratings Lanka has upgraded Janashakthi Insurance PLC’s long- and short-term claims-paying ability ratings to A and P2, respectively from A- and P2. The Outlook on the long term rating is Stable.
The upgrade reflects the continued improvement in the company’s Life segment where it now compares well against its higher rated peers.
The company’s ratings are supported by its good competitive position, underwriting performance in the life segment and above-average capitalisation levels. On the other hand, the ratings are tempered by its average, albeit improving, underwriting performance in the highly competitive general segment.
RAM Ratings acknowledges that Janashakthi has been successful in managing its claims in both segments whilst also implementing tight cost controls that have aided its overall performance. The improvement in Janashakthi’s claims experience is reflected in its easing claims ratio in both general and life segments over the recent years. Resultantly, its Life segment has charted an uptrend in underwriting performance, the net underwriting losses in Janashakthi’s General segment has contracted over the years.
The company’s general segment net underwriting loss during 1H FY Dec 2013 of Rs. 129 million also remained similar to that of last year amidst the competitive climate. In addition, Janashakthi’s cost controls are also reflected in the expense ratio which stood at around 42% in the last three years despite expansion of operations. As such, the net underwriting margin improved to negative 4.59% as at end-March 2013 compared to negative 8.00% as at end-December 2009 (end-Dec 2012: -4.93%). In the meantime, its Life net underwriting margin had broadened to 30.61% as at 31 FYE December 2012, marginally weakening to 27.34% by 1H FY Dec 2013.
Although the company commenced its operations focusing on life insurance, it has, over the years, achieved strong growth in the general segment. Janashakthi is Sri Lanka’s third-largest general insurer, accounting for 11.45% of the industry’s Gross Written Premiums as at end-December 2012. Its good competitive position is underpinned by its extensive geographical reach. In terms of life insurance, Janashakthi is the fifth-largest player, making up 5.44% of industry GWPs as at end-December 2012.
Janashakthi’s composite GWPs grew somewhat slower at 12.02% in fiscal 2012 compared to the previous year’s 15.76% albeit general premiums being the key revenue driver increasing 13.39%. The company further recorded an 8.42% growth in 1H FY Dec 2013. The sluggish growth was industry-wide, amid the slowdown in vehicle market as well as the rising interest rates and inflationary pressure that resulted in an increased cost of living which in turn hampered the growth in Life segment.
Accordingly, the General and Life division’s GWP growth slowed to 13.39% and 8.18% in FY Dec 2012; this slowdown was seen across the industry and followed through to first six months of FY Dec 2013 with life premiums growing at a moderate 3.28% (annualised).
RAM Ratings Lanka positively views Janashakthi’s ability to keep its claims intact, with reduced Life claims and relatively unchanged General claims aided by its measures to manage its claims and weed out unprofitable business in the General segment. Nonetheless, the composite net underwriting margin narrowed in line with the sluggish growth in premiums in both Life and General segments in contrast to the previous year.
Janashakthi’s General underwriting performance is deemed average compared to its peers, albeit on an improving trend. As such, Janashakthi’s pre-tax profit amounted to Rs. 863.50 million in fiscal 2012 compared to Rs. 533.57 million a year earlier, inclusive of higher Life fund transfer as against the prior year.
Elsewhere, the company follows a conservative investment strategy, with 64% of its investment mix made up of fixed deposits and Government securities. Janashakthi’s relatively low exposure to equity is viewed in a positive light as having minimised the impact of stock market downturns on the company.
Janashakthi’s capitalisation is deemed to be above average. Its ratios of shareholders’ funds to insurance funds and shareholders’ funds to total assets clocked in at 32.92% and 21.31%, respectively as at end-FY Dec 2012; its shareholders’ funds to total assets ratio was better than most of its peers’. Concurrently, the solvency margin of the company’s General insurance segment thinned to 1.39 times as at end-June 2013 (end-FY Dec 2012: 2.17 times), while the Life segment’s margin widened to 8.18 times (end-FY Dec 2012: 4.44 times).
