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The Pakistan Credit Rating Agency Limited
Press Release

Date
20-Jul-19

Analyst
Zeeshan Munir
zeeshan.munir@pacra.com
+92-42-35869504
www.pacra.com

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PACRA Maintains IFS Ratings of Crescent Star Insurance Limited | Rating Watch Re-affirmed

Rating Type IFS
Current
(20-Jul-19)
Previous
(18-Jan-19)
Action Maintain Maintain
Long Term A- A-
Short Term - -
Outlook Stable Stable
Rating Watch Yes Yes

The rating reflects CSInsurance's strategy to focus on direct line personal insurance in motor and health segments, targeting small ticket clients. The company has shredded its corporate health portfolio - amid high losses. This enabled the company to improve underwriting losses, though expense ratio is still alarmingly high. The company's liquidity profile matches the risk parameters for current size of business operations, however, going forward, should the insurance business increase, improvement in liquidity profile is essential. CSInsurance is predominantly having a holding company structure through building its non-insurance strategic book. IFS rating of the company reflects the company's liabilities towards the policyholders. The company has completed deployment of sizeable funds in Dost Steels Limited (DSL), funded through internal sources and equity injection; herein, management of associated risks will be important. Moreover, it has entered FMCG sector - CSFoods and CSLuxury. While, CSTechnologies is aimed at providing group support. To further expand its footprint in the retail business, CSInsurance injected fresh equity through way of right issue. The company reported net loss for 2018, though there is nominal profit in 1Q19. The loss was primarily attributed to the dip in business volume and the provisions created on the account of receivable.
The rating watch captures the company's consolidation process in DSL and backward merger of CSFoods into PICIC Insurance, while fulfilling regulatory and legal requirements. Audit qualification is also a consideration. Profitability and curtailed expansion in insurance business along with unfilled casual vacancies on Board is also a consideration. CSInsurance holds major stake in DSL, herein, smooth running of operations and consequent turnover build-up is critical. Generation of cash return from subsidiaries is important. Meanwhile, risk absorption capacity needs to be kept intact.

About the Entity
Crescent Star Insurance Limited (CSInsurance), a listed company, was established in 1957. In Feb-2013, new management has taken over the company, following acquisition. New board invariably revamped the entire operating structure of the company with a new business strategy. The company is listed on Pakistan Stock Exchange. The auditors of the company are Ilyas Saeed & Co., Chartered Accountants. The previous auditors, Grant Thornton Anjum Rahman, have expressed reservations in the audit report for the year ended 2018.

Mr. Naim Anwar chairs the board which comprise of eight members (approval of three members is pending with SECP). Members of BoD, nominated by the sponsors, comprise professionals belonging to technology, engineering, health sciences and NBFCs sectors.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.