Johannesburg, 25 Nov 2013 — Global Credit Ratings has today assigned an initial national scale claims paying ability rating of BBB+(KE) to Fidelity Shield Insurance Company Limited; with the outlook accorded as Stable. The rating(s) are valid until 10/2014.
Global Credit Ratings has accorded the above credit rating(s) on Fidelity Shield Insurance Company Limited based on the following key criteria:
Fidelity Shield Insurance Company Limited (“Fidelity Shield”) was incorporated in 1940, and offers a broad spectrum of non-life insurance products. The insurer has displayed a relatively constrained premium growth trajectory over the review period (CAGR: 10%), which has lagged comparative industry averages, resulting in a gradually reducing market share. Accordingly, as at the end of 2012, Fidelity Shield continued to represent a nominal share of the Kenyan non-life insurance industry, at 1.5% (2011: 1.6%).
Barring F11, the insurer’s international solvency margin has trended upwards over the review period, to equate to a 5-year high of 113% in F12. Solvency metrics are expected to remain sound going forward. Note is, however, taken of the fact that reserves are significantly underpinned by unrealised gains (cumulatively representing 54% of FYE12 capital). The sound quality of the company’s reinsurance counterparties was positively viewed, although the insurer’s largest net exposure per risk is considered somewhat elevated at 1.7% of FYE12 capital. The insurer has registered consecutive underwriting losses throughout the review period, which serves as a rating constraint. This is largely attributable to a combination of motor claim pressures, as well as a lack of scale and resultant cost inefficiencies. To this end, a key challenge remains the limited degree of class diversification, with motor dominating the risk base (at 79% of NPE in F12). As such, the insurer remains reliant on investment income to support overall earnings. Fidelity Shield’s liquidity measures are deemed adequate at current levels. Nonetheless, a high degree of investment and capital risk emanates from the considerable prominence of illiquid property investments, representing 51% and 79% of total invested assets and capital respectively as at FYE12.
A sustained positive underwriting trend over the medium term should be demonstrated, underpinning a consistent increase in capital, and accompanied by risk appropriate solvency levels. Further, improved market penetration and diversification of the business mix, coupled with a more balanced investment approach (supporting enhanced liquidity metrics and reduced capital risk) would be positively viewed. Conversely, a significant decline in the international solvency margin below the level forecast for F13, coupled with a persistent weak underwriting performance and/or a softening in key liquidity metrics could result in negative rating action.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Oct/2013)|
|Long term: BBB+(KE)|
|Primary Analyst||Secondary Analyst|
|Sheri Few||Benjamin Schmidt|
|+27 11 784 1771||+27 11 784 1771|
|Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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/RATING-SCALES-DEFINITIONS . 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.
Fidelity Shield Insurance Company Limited 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 Fidelity Shield Insurance Company Limited with no contestation of the rating.
The information received from Fidelity Shield Insurance Company Limited and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), latest internal management strategic plan, full year detailed budgeted financial statements for 2013, unaudited year to date management accounts to June 2013, the 2013 reinsurance cover notes 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.