Global Credit Ratings has accorded the above credit rating(s) on CiC General based on the following key criteria:
Following a recent de-consolidation of insurance activities at group level, CiC General focuses exclusively on short term insurance business, covering the entire spectrum of non-life insurance lines. Underpinned by well entrenched business relationships within the Co-operative space, the insurer accounted for a sizeable 9% market share in the fragmented domestic non-life insurance arena, making it the 2nd largest player on a gross premium basis. CiC General is a wholly owned subsidiary of the CiC Insurance Group Limited (“CiC Group”), which in turn is 75% owned by the Co-operative Insurance Society Limited. The remaining 25% shares are listed on the Nairobi Stock Exchange and are
spread across a number of individual investors. As at 30 July 2013, CiC Group reflected a market capitalisation of around US$124.5m.
Underpinned by the realisation of sustained cost efficiencies, the insurer’s underwriting margin has register at sound levels in recent years, plotting above the respective industry average. However, some degree of margin volatility persists in light of the erratic claims experience. The sizeable investment base and balanced investment stance are supportive of adequate liquidity metrics, albeit declining of late. Nonetheless, some investment risk emanates from a considerable prominence of illiquid property investments, which equated to a sizeable 44% of FYE12 capital. Resulting from a re-structuring of capital reserves (as part of the separation of life and non-life insurance operations), international solvency declined notably in F12, to a review period low of 40%. Moreover, statutory solvency softened markedly in F12, albeit remaining above the regulatory requirement. Whilst international solvency is projected to recover to 46% by year-end F13 (supported by an expected KShs200m capital injection), solvency strain is likely to persist over the short to medium term, due to an expectation of sustained strong premium growth. A further drawback remains the limited degree of class diversification, with motor and medical dominating the risk base (at a combined 82% of NWP in F12), with the latter remaining loss making in F12 amidst a prohibitive claims ratio.
Solid retained earnings underpinning a consistent increase in capital and key solvency metrics over the medium term, thus outpacing an expectation of sustained strong premium growth. Further, increased portfolio diversification, thus reducing the reliance on motor and medical risks would also be positively viewed. Conversly, failure to attain projected near term solvency levels as per F13 forecasts could lead to downward rating pressure. In this regard, GCR would expect the international solvency margin to plot consistently around the 50% mark over the short to medium term to maintain the current rating. Further, the adoption of a more aggressive investment strategy (thus unduly compromising key liquidity metrics) would be negatively viewed.
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|Sector Head: Insurance|
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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.
CiC General participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to CiC General with no contestation of the rating.
The information received from CiC General and other reliable third parties to accord the credit rating included the latest audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, the current year reinsurance cover notes, actuarial valuation statement, debtors provisioning policy document, ERM processes/framework (including catastrophe management framework), reserving methodologies, capital management policy.