Announcements

GCR accords Occidental Insurance Company Limited an initial rating of A-(KE); Outlook Stable.

Johannesburg, 31 March 2017 — Global Credit Ratings has today assigned a national scale claims paying ability rating to Occidental Insurance Company Limited of A-(KE), with the outlook accorded as Stable. The rating is valid until December 2017.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Occidental Insurance Company Limited (“OIC Kenya”) based on the following key criteria:

OIC Kenya reflects strong risk adjusted capitalisation, supported by limited market risk exposures and well contained insurance risks. Accordingly, the international solvency margin equated to a high 74% at FY16 (FY15: 78%). GCR expects capitalisation to remain strong, underpinned by the conservative dividend policy and sound internal capital generation.

Liquidity metrics are strong, as evidenced by high claims cash cover of 15 months and moderately strong net technical provision coverage of 0.8x at FY16 (FY15: 20 months and 0.9x). Healthy operating cash flow generation and conservative asset allocation (with the bulk of investments held in liquid assets) have facilitated this key rating strength. GCR expects the company’s liquidity metrics to continue to measure within a strong range.

The insurer’s business profile is viewed to be sound, supported by well-balanced and consistent earnings stream, with a relatively low product risk score. However, this is partially offset by intermediate competitive positioning. In this respect, the insurer’s share of short term industry gross premiums equated to 2% in FY16. Competitive positioning may improve over the medium term, given the increased focus on growth. This is expected to be supported by the enhanced concentration on the retail segment, while increasing brand visibility and regional presence.

OIC Kenya’s earning capacity is viewed to be sound, supported by healthy through-the-cycle underwriting profitability. In this respect, the insurer’s aggregate underwriting margin amounted to 4% over the review period. In GCR’s view, sustaining underwriting margins within a sound range amidst the strategic shift toward growth may contribute favourably to the rating.

The insurer’s reinsurance panel reflects a sound aggregated level of credit strength, with the lead being taken by ZEP-Re (PTA Reinsurance Company). Maximum net deductibles are viewed to be moderately high relative to capital.

The actuarial function is undertaken by internal resources. Furthermore, the company has an external actuary to test the adequacy of reserves, in line with IRA requirements. The appointed actuary was satisfied with the prudence and calculation methodology for the technical provisions calculated as per the Guidelines in the Insurance Liability Valuation as at FY15.

Earnings capacity registering within a sound range through the expansionary phase, coupled with the successful attainment of key targets is likely to support upward rating movement. This would need to be supported by risk adjusted capital adequacy and liquidity remaining at strong levels. Conversely, a downgrade could result from a persistent deterioration in the underwriting result beyond expectations, coupled with material reduction in risk adjusted capitalisation and/or liquidity metrics.

NATIONAL SCALE RATINGS HISTORY    
     
Initial/last rating (March 2017)    
Claims paying ability: A-(KE)    
Outlook: Stable    

ANALYTICAL CONTACTS

Primary Analyst   Committee Chairperson
Munyaradzi Mushure   Yvonne Mujuru
Credit Analyst   Sector Head: Insurance Ratings
(011) 784-1771   (011) 784-1771
munyaradzim@globalratings.net   ymujuru@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2016

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.

Occidental 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 has been disclosed to Occidental Insurance Company Limited with no contestation of the rating.

The information received from Occidental Insurance Company Limited and other reliable third parties to accord the credit rating included:

  • Audited financial results to 31 December 2015
  • Four years of comparative audited numbers
  • Unaudited financial results to 31 December 2016
  • Budgeted financial statements for 2017
  • Statutory returns to 31 December 2015
  • The Financial Condition Report for 2015, and
  • Other relevant documents

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

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY

Balance Sheet Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
Capacity The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.
Capital The sum of money that is invested to generate proceeds.
Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
Capital Adequacy A measure of the adequacy of an entity’s capital resources in relation to its risks.
Cash Funds that can be readily spent or used to meet current obligations.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
Deductible The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.
Diversification Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
Experience A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time period.
Financial Flexibility The company’s ability to access additional sources of capital funding.
International Scale Rating LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
Investment Income The income generated by a company’s portfolio of investments.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
Liquidity The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Loss The happening of the event for which insurance pays.
Market Risk Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.
Net Profit Trading/operating profits after deducting the expenses detailed in the profit and loss account such as interest, tax, depreciation, auditors’ fees and directors’ fees.
Portfolio All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Reinsurance The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Securities Various instruments used in the capital market to raise funds.
Solvency With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.
Stop Loss Any provision in a policy designed to cut off an insurer’s losses at a given point. In effect, a stop loss agreement guarantees the loss ratio of the insurer.
Underwriting The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.

For a detailed glossary of terms please click here

GCR accords Occidental Insurance Company Limited an initial rating of A-(KE); Outlook Stable.

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