PACRA Downgrades IFS Rating of TRAFCO Insurance Company Limited

TRAFCO Insurance Company Limited ("TRAFCO Insurance" or "the Company") is currently in its developmental phase, with a limited market share in the non-life insurance sector, offering only conventional insurance products. The Company's revenue base remains weak, with the majority (~68%) stemming from the Insurance Guarantees segment. This is followed by contributions from Fire and Property (~19%), Motor (~9%), Miscellaneous (~2%), and Marine & Aviation (~1%). Despite ongoing operations, TRAFCO continues to report underwriting losses. As of CY24, the Company does not maintain an investment portfolio and, consequently, lacks investment income to support its bottom line, except for interest income from loans extended to its subsidiary, resulting in a profit after tax (PAT) of PKR 7mln. On the financial risk front, TRAFCO holds a paid-up capital of PKR 570mln. In light of evolving regulatory requirements, the Company will require a capital injection to meet the Minimum Capital Requirement (MCR) of ~PKR 2bln by 2030. While efforts have been made to comply with the
minimum solvency requirement of PKR 150mln, a shortfall of PKR 73mln remains as of CY24. The absence of an investment book has further strained the Company’s liquidity position. Due to these risk factors, the Company's rating has been adjusted downward. To address these challenges, TRAFCO must improve underwriting practices and develop a robust investment portfolio to generate supplementary income, an essential step toward improving its liquidity and overall financial stability.
The ratings are dependent on TRAFCO's relative standing and an improvement in the overall business profile. Moreover, achieving underwriting profitability remains important. Resolution of compliance concerns related to the Insurance
Ordinance, 2000, remains imperative. Additionally, the development of a healthy investment book remains crucial for rating. Any further weakening in the financial profile may impact the ratings.

About the Entity
TRAFCO Insurance Company Limited (‘TRAFCO Insurance’ or ‘the Company’) was incorporated in Pakistan as an unlisted public limited company on 25-Oct-79. The Company operates within the conventional general insurance space through three branches in Pakistan. The sponsorinf family holds majority stake, where Mr. Tahir Malik holds ~40%, followed by Mrs. Saboohi Tahir holdind ~30% stake in the Company. The remaining (~30%) of the shares are held by other family members. The Board is chaired by Mr. Tahir Malik. While the CEO, Mr. Muhammad Nawaz Shahid, is assisted by a team of
professionals.