Announcements

GCR accords A-(UG) rating to Lion Assurance Company Ltd; Outlook Stable.

Johannesburg, 30 Jun 2014 — Global Credit Ratings has today accorded Lion Assurance Company Ltd with a national scale claims paying ability rating of A-(UG); with the outlook accorded as Stable. The rating(s) are valid until 06/2015

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Lion Assurance Company Ltd (“Lion Uganda”) based on the following key criteria:

Lion Uganda has been operating in the Ugandan insurance industry since 2004. Lion Uganda is an 87% owned subsidiary of Botswana Insurance Company (“BIC”), the largest short term insurer in Botswana (rated AA-(BW) by GCR). BIC is, in turn, ultimately majority owned by TA Holdings, an investment holding company that has investments in the insurance sector through two 100% owned vehicles, namely Freecor (Pvt) Ltd and Trans Industries (Pty) Ltd.

The rating reflects Lion Uganda’s notably improved underwriting performance, with profits achieved over the past two years. This stems from management’s stricter adherence to a disciplined underwriting approach and somewhat enhanced cost rigor, with this positive trend expected to persist going forward. The rating benefits from the ongoing de-risking of Lion Uganda’s balance sheet, with a significantly lower exposure to unlisted equities displayed. This has seen cash reserves and liquidity metrics strengthen to levels more in line with industry peers in F13 (and is likely to increase further in terms of continued asset disposals). In light of this, the insurer is expected to exhibit a reduced level of earnings and capital volatility going forward.

Supported by strong earnings generation and a more subdued growth appetite, the international solvency margin strengthened to 79% in F13 (F12: 68%). In addition, risk-adjusted solvency (stressing capital for a level of asset risk on unlisted investments) was reported at a sound 69% as at FYE13 (FYE12: 51%) and is forecast at 76% in F14. Overall, the improved quality of the balance sheet is viewed as a strong supporting rating factor.

Cognisance was also taken of Lion Uganda’s established position (5th largest) in the local short term insurance sector. Defending the insurer’s market position without compromising the quality business will, however, be a key challenge going forward. Heightened concentration risk was also noted in terms of the increasing reliance on the motor line.

Upward rating adjustments could develop over the medium to longer tem should the insurer register a stable underwriting track record over a prolonged period, with strict underwriting disciplines required to be maintained. Further, solvency should be maintained at commensurate risk-adjusted levels, coupled with a strengthened liquidity profile. In GCR’s view, the reversal of current underwriting trends would likely put downward pressure on the rating. A material weakening in international solvency or key liquidity metrics to historic levels could also bear negative rating actions.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY

Initial rating (Jun/2014)
Claims paying ability: A-(UG)
Outlook: Stable

Last rating (Jun/2014)
Claims paying ability: A-(UG)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Sheri Few
Senior Analyst
(011) 784-1771
Few@globalratings.net

Committee Chairperson
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013)
Lion Assurance Company Limited (“Lion Uganda”) rating reports, 2012-2013

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Lion Assurance Company Ltd participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating/s has been disclosed to Lion Assurance Company Ltd with no contestation of the rating.

The information received from Lion Assurance Company Ltd and other reliable third parties to accord the credit rating(s) included the latest available audited annual financial statements for 2013 (plus four years of comparative numbers), full year detailed budgeted financial statements for 2014, year to date management accounts to May 2014, the 2014 reinsurance cover notes, 2013 internal risk matrices, 2013 internal auditor report, 2013 statutory return and other non-public statistical information.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

GCR accords A-(UG) rating to Lion Assurance Company Ltd; Outlook Stable.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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