Kathmandu. Credit rating agency CARE Ratings Nepal has removed United Ajod Insurance Limited’s financial strength rating from its ‘Watch List with Negative Impact’.
Care Ratings has upgraded the rating, citing the company’s ability to withstand recent claims impacts.
The revolt of the Gen G (younger generation) on September 23 and 24 and the continuous floods and landslides from September 1 to 20 had made a big claim on the company. As of November 30, the company has received claims worth Rs 52.80 crore related to performance. Out of this, the company has to bear Rs 34.50 crore on its own. Of this, 34 per cent will have to pay Rs 18.20 crore as net holding. Similarly, out of the total claim of Rs 770 million for flood and landslide damages, the liability is only Rs 3.90 crore. The rest will be reimbursed through the reinsurance company.
The company’s reinsurance arrangement and sufficient liquidity make it financially capable of sustaining these claims, Care Ratings said. The impact of this is on the company’s current financial year 2082. The profit for the first quarter of Q83 is reflected in earnings.
The rating agency also cited the company’s long experience, business size that has grown since the merger with United Insurance, which has been in operation since 1993, and Ajod Insurance in 2023. The paid-up capital of the company stands at around 273%, which is well above the regulatory standard (minimum of 130%). The company is expected to issue 10 percent right shares to further strengthen liquidity.
In addition, reinsurance arrangements, experienced management, and low market penetration of general insurance in Nepal have positively viewed the potential of business expansion in the future.
The rating agency has also mentioned some challenges in terms of the company’s rating. After the merger, the company’s insurance premium has decreased by 12 percent in the previous fiscal year and 4 percent in the last fiscal year. Market share has decreased slightly. The company’s risk holding rate reached 42 percent in the last fiscal year, which is higher than the previous year. The commission-income ratio has decreased. Similarly, the return on investment has come down to 4.9 percent in the last fiscal year from 7.4 percent in the previous year. The bank’s falling interest rates are likely to put further pressure on it.
The company’s over-reliance on the motor insurance sector is considered to be 31 percent of the total insurance premium and 50 percent of the net insurance premium. The rating agency has warned that policy changes in this area could have an impact on the company’s business.
The rating revaluation will be determined by the company’s ability to improve underwriting and diversify investments in the future.
