AM Best exits review with negative implications and confirms EFU General Insurance Limited credit ratings

LONDON–(BUSINESS WIRE)–AM Best was removed from review with negative implications and affirmed EFU General Insurance Limited’s Financial Strength Rating of B+ (good) and Issuer Long-Term Credit Rating of “bbb-” (good) (EFUG) (Pakistan). The outlook assigned to credit ratings (ratings) is stable.

The ratings reflect EFUG’s balance sheet strength, which AM Best assesses as strong, as well as its strong operational performance, neutral business profile and marginal enterprise risk management (ERM).

The rating actions follow the conclusion of a detailed review by the company of its catastrophe exposures, modeled net probable maximum losses (PML) and reinsurance needs. This review led EFUG to purchase additional layers of catastrophe reinsurance protection for 2022 to match its growing modeled PML estimates for severe events. Therefore, AM Best expects the company’s risk-adjusted capitalization, as measured by Best’s capital adequacy ratio (BCAR), to remain comfortably at a very high level over the medium term.

In addition, EFUG’s strong balance sheet strength assessment reflects the company’s high investment risk, which remains the largest component of required capital in BCAR. The Company’s investment portfolio is heavily exposed to equity securities and solely concentrated in Pakistan. While compliant with national regulatory requirements, according to AM Best, this concentration impacts asset quality and exposes the company to potential capital volatility. Offsetting balance sheet factors also include EFUG’s relatively high reliance on reinsurance and its exposure to unrated reinsurance receivables through compulsory cessions to the state reinsurer in Pakistan.

EFUG has a track record of strong operating profitability, with a five-year (2016-2020) weighted average return on equity of 12.7% and premium yield of 39.5%, supported by strong underwriting and positive investment. The company generated strong underwriting earnings over the same period, with an average combined ratio of 85.1%. Although underwriting results have deteriorated over the past two years, in part due to competitive premium rate pressures and the increased incidence of natural peril losses, the five-year weighted average loss ratio ( 2016-2020) is 44.6%. AM Best expects forward-looking underwriting performance to remain strong.

EFUG enjoys a leading domestic market position in Pakistan, with a market share of 22% in 2020, measured by Gross Written Premium (GWP). The company has a well-diversified underwriting portfolio across non-life business segments, and by combining conventional and takaful business, EFUG has underwritten a consolidated GWP of PKR 22.6 billion (USD 141.7 million) in 2020. The company relies on its longstanding customer relationships to maintain a defensible market position, which has helped it navigate a challenging business environment.

In recent years, EFUG has formalized and strengthened its ERM framework and capabilities. Nonetheless, in AM Best’s view, the company continues to face challenges in operating in a high-risk environment.

This press release relates to credit ratings that have been published on AM Best’s website. For all rating information relating to the release and relevant disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit AM Best’s Recent Rating Activity webpage. For more information on the use and limitations of credit rating opinions, please see Best’s Guide to Credit Ratings. For more information on the proper use of Best’s Credit Scores, Best’s Preliminary Credit Scores, and AM Best’s press releases, please see Best’s Scores and Ratings Proper Use Guide.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in more than 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit

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