The Pakistan Credit Rating Agency Limited
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Faraan Taimoor

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PACRA Maintains IFS Rating of Crescent Star Insurance Limited

Rating Type IFS
(29-Jan-21 )
(31-Jan-20 )
Action Maintain Maintain
IFS Rating A- A-
Outlook Stable Stable
Rating Watch Yes Yes

The rating reflects Crescent Star Insurance's strategy to focus on direct line insurance in motor and miscellaneous segments. Focus remains on underwriting risk free business, though volumes remain relatively low. This has enabled the company to improve underwriting losses, though the expense ratio is still high. Crescent Star Insurance predominantly has a holding company structure through building its noninsurance strategic book. IFS rating of the company reflects the company's liabilities towards the policyholders. The company has deployed sizeable funds in Dost Steels Limited (DSL), which has been non-cash generating for quite some time. A revival plan is being unfolded which will provide leadership to the company, while ensuring requisite funding for working capital and related operations needs. Management further aims to unlock liquidity through disposing stake in it’s subsidiary. This would help augment the financial profile; a positive step moving forward. The company's current liquidity profile matches the risk parameters for the size of business operations, however, going forward, should the insurance business increase, improvement in liquidity profile is essential.

Prior to COVID-19, the general insurance industry witnessed a growth of 11% YoY. The current pandemic affected the volumes, which led to a contraction in the growth. However, volumes have picked up post-June 2020 amidst increase in economic activities throughout the country. The volumes need to sustain, indeed, improve in tandem with the longer historical trend. The interest rate regime would impact the fixed income stream, but the equity market is improving though requiring a prudent approach.
The rating watch captures the company's consolidation process in Dost Steel Limited and backward merger of CSFoods into PICIC Insurance while fulfilling regulatory and legal requirements. Keeping the business model, the management prefers facultative arrangements. The 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 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. Some of the major points that the auditors have raised are being addressed by the management, which are expected to reflect in the next report, as per the management representation.

Mr. Naim Anwar chairs the board which comprised of eight members. 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.