AM Best Upgrades Credit Ratings of EFU General Insurance Limited

AM Best has upgraded the Financial Strength Rating to B (Fair) from B- (Fair) and the Long-Term Issuer Credit Rating to "bb" (Fair) from "bb-" (Fair) of EFU General Insurance Limited (EFUG) (Pakistan). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect EFUG's balance sheet strength, which AM Best assesses as adequate, as well as its strong operating performance, neutral business profile and marginal enterprise risk management (ERM).

The rating upgrades reflect improvements in EFUG's balance sheet strength fundamentals, notably through strengthened risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), underpinned by good earnings retention. In addition, the upgrade considers improvements in the economic, political and financial system risks in Pakistan.

The stable outlooks reflect EFUG's strengthened risk-adjusted capitalisation, which is expected to remain at least at the very strong level, as measured by BCAR. However, the company's risk-adjusted capitalisation remains potentially volatile and sensitive to asset risk, which is the primary driver of required capital. Further offsetting factors include a high dependence on reinsurance and exposure to a non-rated reinsurance counterparty, through mandatory cessions to the state-owned reinsurer in Pakistan.

EFUG has a history of robust operating profitability, with a five-year (2020-2024) weighted average return on equity of 14.9%, supported by positive underwriting and investment results. The company has generated solid underwriting profits over the same period, with an average combined ratio of 88.8%. Despite difficult market conditions, AM Best expects EFUG's prospective underwriting performance to remain strong.

EFUG benefits from its leading market position domestically, with an estimated non-life market share of 20% in 2024. The company has a well-diversified underwriting portfolio across non-life business segments, and when combining conventional and takaful business, EFUG wrote consolidated gross written premium of PKR 41.3 billion (USD 149 million) in 2024. The company experienced a marginal decline in premiums during 2024 as part of a strategic action to de-risk its underwriting portfolio. The company leverages its long-standing client relationships in the market, which has helped it to navigate the challenging business environment.

AM Best views EFUG's ERM as marginal given the size and complexity of its operations. The company's risk profile remains exposed to Pakistan's elevated economic, political and financial system risks. While AM Best notes EFUG's historical operational resilience to country risk factors, risk management challenges are presented by its concentration of business and assets in Pakistan.

This press release relates to Credit Ratings that have been published on AM Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best's Credit Ratings, Best's Performance Assessments, Best's Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best's Ratings Assessments

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com

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