Kathmandu. Rating agency ICRA Nepal has retained the ‘Issue Rating’ of Liberty Micro Life Insurance Limited from [ICRANP-IR] BB. According to ICRA Nepal’s recently released credit rating report, this rating indicates that the company is in the moderate risk category in terms of meeting its financial obligations on time.
Despite the positives such as a network of 23 branches and solvency ratio above the minimum regulatory threshold of 1.99 times, the company’s business model, a steep decline in investment return and governance challenges have raised questions about its long-term sustainability and profitability.
FY 2082. In FY83, Liberty Micro Life has collected a total premium of Rs. 52.3 crores. Analyzing the composition of the total insurance premiums, the company’s portfolio seems to be more focused on certain areas. Term insurance contributes about 68 per cent of the total insurance premiums. Of this, the share of business received through the foreign employment insurance pool alone is about 30 per cent equivalent to Rs 156 million. About 37 per cent of the total insurance premium has been received from micro loan borrowers and borrowers from institutional microfinance, cooperatives and banks. The total insurance premium is Rs. 15.70 crore as a single insurance premium.
The dependence of 68% of the total insurance premium on short-term term insurance and 30 percent of it on foreign employment insurance, which is also covered by the government, shows that the company’s own net market expansion capacity is weak. In addition, in the financial year 2087. Since 1988, the Insurance Authority has been fully implementing the risk-based capital (RBC) system. Since the claim ratio has reached 20 percent and the claim risk in term insurance is high, it is doubtful how strong the solvency base of the company will be after the implementation of the RBC system.
About 13 percent of the total investment of the company is in the stock market. The company has suffered a loss of about 15 percent in this investment till the end of July 2083. The large investment of 5.6 percent in the shares of the same company and 17 percent in the same collective investment fund shows the weak investment strategy of the previous management.
FY 2082. The company’s net profit fell by 97 per cent to Rs 4,60,000 in FY83. As a result, the return on shareholders has come down from 3.1 per cent to 0.1 per cent. The company is preparing to issue a primary share issue (IPO) for the general public.
The bonus returns that life insurance companies give to the insured are mainly dependent on the interest rate from their long-term investments, debentures and fixed deposits. Liberty’s investment returns have come down from 10.4 percent to 5.6 percent. The net claim payout ratio has reached 20 percent of the total net insurance premiums.
