PACRA Maintains IFS Rating of Postal Life Insurance Company Limited

Pakistan's Life Insurance sector face challenges due to an unexpected rise in inflation leading to a decrease in the disposable incomes. To adapt, sector players shifted their focus from first-year persistency to second-year, prioritizing top-line growth. However, the market size of the Life Insurance sector with respect to the Gross Premiums Written (GPW) posts growth of ~28% in CY22.On the expense side, gross claims grew by ~47%. While the loss ratio, with respect to both the private and public segments, has also been gradually rising. The sector's outlook is expected to remain stable, supported by the investment income. On the financial risk side, the sector is expected to maintain liquidity. Going forward, sluggish economic pace may impact the sector's overall stability.
The assigned rating derives assurance from Postal Life Insurance Company Limited ('Postal Life' or 'the Company') a wholly owned subsidiary of the Govt. of Pakistan (GoP), through the Ministry of Communications. The GoP has also injected equity of PKR 4bln, which is a testimony of GoP’s vision and commitment to the Company. The rating derives comfort from the outreach of Postal Life through the vast branch network of Pakistan Post, spread across the country. The GoP formulated Postal Life as a separate legal entity, in Mar’20, which operates under the regulatory framework of the SECP. The Company is in the process of approval of the "Postal Life Insurance Act, 2021" from the Parliament of Pakistan. Postal Life has two separate funds namely: i) Post Office Business Fund (POBF) & ii) Pakistan Business Fund (PBF) for distinct management of legacy and new businesses. POBF is established for claims related to legacy business. Whereas, PBF is established to pay off obligations related to the new business of Postal Life. The audit of the financial statements for the period ended 31 December, 2022 is at an advanced stage. It has been delayed due to extraneous factors, as represented by the management. Timely completion of audit is a pre-requisite. The Company GPW posted growth; however, substantial uptick in the policy surrenders significantly reduced the Company's bottomline. Overall financial performance of the Company can be described as adequate. On the financial risk front, the ratings factor in healthy capital position, strong risk absorption capacity, sufficient liquidity of the investment portfolio (mainly government securities).
The Company's ongoing ability to independently sustain statutory funds, and enhance its market position and core profitability are critical factors. The streamlining of audit procedures remains integral to sustaining the rating. Moreover, prudent management of risk and agency models remains important. Further, the approval of the "Postal Life Insurance Act, 2021" from Pakistan's Parliament, along with the realization of accrued interest income on the promissory note holds significant weight in the assessment of the rating.

About the Entity
Postal Life Insurance Company Limited was established in 1884. The Government of Pakistan formulated Postal Life as a separate legal entity, in Mar’20. Postal Life conducts its operations through a vast branch network of post offices with five regional offices (located in Lahore, Multan, Karachi, Quetta, and Peshawar) and two circles (Lahore & Karachi). Whereas, the principal office is located in Islamabad. Postal Life is wholly owned by Govt. of Pakistan through the Ministry of Communications. Postal Life has a seven-member BoD. Capt.(R) Mr. Muhammad Khurram Agha is the Chairman of BoD. Mr. Hafiz Shakeel Ahmad is the acting CEO of the Company. He is accompanied by a team of professionals.