Kathmandu. Credit rating agency ICRA Nepal has reaffirmed the issuer’s rating of Micro Insurance Company Protective Micro Insurance Limited, ICRA Double B. This reaffirmation indicates a moderate risk of insolvency with respect to timely fulfillment of predetermined financial obligations.
This is reaffirmed at a time when the newly licensed insurer is facing stiff competition and challenges to make long-term profits while demonstrating aggressive business expansion.
A primary factor supporting the valuation is the ratio between Protective’s adequate capitalization and financial liability. This currently offsets the risks associated with its low operating volume. As of mid-July 2024, the company’s capital to solvency ratio was 1.83 times. This position was above the minimum threshold of 1.5 times. The financial position is expected to strengthen further after the proposed initial public offering (IPO) of Rs 25 crore.
Himalayan Reinsurance Limited holds 21 percent stake in this micro insurance company. Protective has expanded its branch network to 33 by mid-July. This geographical access is due to the fiscal year 2081. In 2018, the total insurance premiums collected increased by 2.8 times.
Despite strong capital and branch network growth, the company’s limited operating background (as of April 2023) and serious scalability challenges have limited valuation. Protective has to operate a business in a highly competitive landscape. It is facing challenges not only from three other newly licensed micro insurance companies (Nepal Micro Insurance, Star Micro Insurance, and Trust Micro Insurance) but also 14 established mainstream non-life insurers offering small-ticket insurance products.
So far, there has been a negative actuarial surplus due to intense competition and short operating history. As a result, the company’s profit (it had profit after tax of Rs 13 lakh in FY2025) is heavily dependent on investment yield. This dependence is considered risky, especially given the prevailing low interest rate regime, which has moderated yields. About 86 percent of the company’s Rs 564 million is invested in fixed deposits in ‘A’ class banks. Its average rate of return is 8 percent.
ICRA Nepal has pointed to the high concentration risk of dependence on motor insurance. In addition, the lack of catastrophe reinsurance has raised concerns that the business will be at risk as it grows.
Regulatory limitations restricting micro-insurers from issuing policies with sum insured above Rs 50 lakh have been hampering business expansion.
