ICRA Nepal assigns Grade 4 to the upcoming IPO of Reliance Life Insurance; Rating indicates below average fundamentals

Fri, Dec 27, 2019 11:54 AM on Credit Rating, IPO/FPO News, Latest, Stock Market,
ICRA Nepal...

ICRA Nepal has assigned a grading of [ICRANP] IPO Grade 4, indicating below average fundamentals, to the proposed initial public offering (IPO) of NPR 630 million of Reliance Life Insurance Limited (RLIL). RLIL is proposing to come out with an IPO of 6,300,000 equity shares with a face value of NPR 100 each, at par. The proposed issue is being launched to meet the minimum capital requirement for life insurers rolled out by the regulator, Insurance Board of Nepal.

Grading strengths

  • Strong promoter profile
  • High portion of long-term endowment business in overall premium earnings
  • Adequate reinsurance support
  • Adequate quality of investment with good investment earning potential
  • Adequate solvency profile

Grading challenges

  • Limited track record with small market share
  • Low policy continuation rate
  • Subdued return indicators with high cost of operations

About the company           

Reliance Life Insurance Limited (RLIL) is a public limited life insurance company (LIC), operating since November 2017. Its head office is in New Baneshwor, Kathmandu. RLIL has been established with Nepalese capital with the promoters including Siddhartha Bank, Agni Group and other major promoters also belong to large business groups in Nepal (MC Group, Kedia Organisation, Reliance Group, Shiv Shakti Group, etc).

 RLIL is a new player in the life insurance industry of Nepal. Along with 9 other LICs, RLIL was licensed by the Insurance Board in 2016/17, taking the total number of life insurers to 19 from 9. As of mid-July 2019, the company has been in operations with 88 branches and 9,205 individual agents and 19 corporate agents spread across the nation for procuring new business and extending after-sales services.

RLIL’s total paid-up capital was NPR 1,470 million as of mid-July 2019 and will reach NPR 2,100 million after the public issuance. Post the IPO, the promoter : public shareholding will be 70:30. RLIL reported a profit after tax of NPR ~16 million for FY2019 on a total asset base of NPR ~2,174 million as of mid-July 2019 compared to profit after tax of NPR 92 million in FY2018 on a total asset base of NPR 1,642 million.

Key financial indicators:

Amount in NPR million

FY2018 (Audited)

FY2019*

(Provisional)

3MFY2020

(Provisional)

Number of months in operation

8

12

 

First year premium (FYP)

86

628

 

Renewal premium (RP)

-

48

73

Single premium (SP)

-

66

-

Total gross premium (TGP)

86

742

254

Net premium

84

717

242

Premium on endowment policies 

85

723

250

% share of endowment in total premium

99%

97%

98%

Premium on term policies

1

19

4

% share in total premium

1%

3%

2%

Total management expenses

83

325

84

% of gross premium

 

44%

33%

Total investment

1,490

1,736

1,926

Yield on investment

12.87%

12.01%

10.72%

Profit after tax

92

16

18

Return on equity

8.80%

0.99%

4.65%

Solvency margin

1.115

1.77

 

* Before actuarial valuation

Source: icranepal.com