The Government of Pakistan, through the Privatization Commission, intends to divest 60,000,000 (20 percent) shares of Pakistan Reinsurance Company Limited (PAKRI or ‘the Company’) via a Secondary Public Offering using the 100 percent Book Building Method.
According to the draft prospectus, the shares will be offered by conducting 100 percent Book Building. Successful bidders will be provisionally allocated 75 percent of the Offer size (45 million shares) and 25 percent of the total transaction (15 million shares) will be issued to the general public.
Any unsubscribed shares from the general public portion will be allotted to successful bidders on a pro rata basis.
Since PAKRI is a listed entity, the Floor Price of the Offer will be disclosed close to the commencement of Book Building. The Floor Price, after approval by the Privatization Commission Board and Cabinet Committee on Privatization (CCOP), will be notified through the websites of the Pakistan Stock Exchange, Habib Bank Limited, and Next Capital Limited.
PAKRI is the sole reinsurance company of Pakistan and was incorporated in the country as a public limited company in 2000. In 2001, it took over all the assets and liabilities of the former Pakistan Insurance Corporation (PIC) formed under the PIC Act, 1952, in order to support the local insurance industry. It is a public sector company working as an autonomous body under the Ministry of Commerce, Government of Pakistan, and its prime objective is the development of insurance and reinsurance business in the country.
As the national reinsurer, it provides reinsurance protection to the local insurance industry in view of the treaty and facultative business.
By providing reinsurance services locally, PAKRI enhances the foreign exchange retention capacity of the country. It is also collaborating and participating with its international counterparts in the field of reinsurance.
This is being achieved under the aegis of the Economic Cooperation Organization (ECO) with the objective of reducing the outflow of foreign exchange and improving the standard of insurance and reinsurance services in the region. PAKRI is also one of the pioneers and founding members of the Federation Afro-Asian Insurers and Reins.
The Government of Pakistan holds approximately 45 percent of the shareholding in the Company through the Ministry of Commerce.
Since this Offer is being made through 100 percent Book Building with 25 percent allocation to retail investors, the underwriting of the retail portion is not needed. In case the Offer remains unsubscribed, the unsubscribed shares shall be allotted to the successful bidders on a pro rata basis. The successful bidders have already given undertakings to subscribe to such unsubscribed shares on a pro rata basis.
The principle revenue driver of PAKRI is the growth in the non-life insurance industry which is mainly driven by economic growth. As business activity grows, the demand for insurance also increases, which in turn, leads to generating demand for the reinsurance business.
Pakistan has started showing signs of economic development with a 26 percent increase in income per capita from FY10 to FY19, reaching USD 4,884 per capita on a PPP basis. The ease of doing business in Pakistan has also improved as according to World Bank’s Doing Business Index 2020, it was among the ‘top ten best improvers’ and has clinched its highest rank in 15 years owing to significant reforms in the areas of starting a business, registering property and resolving insolvency.
As businesses prosper, the demand for insurance will grow, ultimately increasing the demand for reinsurance. Being the only domestic reinsurance company, PAKRI is well-positioned to capture any anticipated growth in the insurance industry.
During recent years, PAKRI’s gross premium has increased to Rs. 17-18 billion as compared to Rs. 8-10 billion in 2014-18. This huge growth is mainly attributed to new power projects reinsured during the period.
More projects are expected to be developed under the CPEC initiative providing a potential revenue stream for the Company. In addition, the Company launched its Retakaful business in 2018 and underwrote Rs. 424.8 million in 2019 and Rs. 603 million during 2020.
As per the Insurance Association of Pakistan (IAP) Yearbook 2019-20, there are three general takaful companies with 22 window takaful operations. PAKRI is yet to capture this entire market that will increase the contribution of the retakaful window.
PAKRI owns a diversified portfolio invested in debt securities, equity securities, mutual funds, and investment property. It manages these investments in-house, except for mutual funds that are outsourced to leading asset management companies.