Announcements Insurance Rating Alerts

GCR affirms AIG Kenya Insurance Company Limited’s national scale financial strength rating of AAA(KE); Outlook Stable.

Rating action

Nairobi, 25 May 2021 – GCR Ratings (“GCR”) has affirmed AIG Kenya Insurance Company Limited’s (“AIG Kenya”) national scale financial strength rating of AAA(KE), with the outlook accorded as Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
AIG Kenya Insurance Company Limited Financial strength National AAA(KE), Stable Outlook

Rating rationale

AIG Kenya’s national scale financial strength rating reflects a strong financial profile bolstered by very strong risk adjusted capitalisation and liquidity, as well as sound earnings on the gross book, offsetting its limited business profile. Furthermore, the rating derives uplift from implied parental support from AIG MEA Limited Group (“the group”), reflected by strong integration with the group, mainly through the cession of about 65% of gross premiums, technical support as well as operational and brand alignment.

Risk adjusted capitalisation represents a key rating strength. The entity exhibited improvements in capital adequacy over the review period driven by a healthy internal capital generation. The FY20 GCR Capital Adequacy Ratio (“CAR”) was further bolstered by a reduction in counterparty risk and underwriting risk exposures amid the COVID 19 pandemic, resulting in an improvement to 3.3x. The statutory CAR also registered improvements to 333% (FY19: 310%). Going forward, risk adjusted capitalisation is expected to remain above 3x, with potential for ongoing support from better earnings management and limited counterparty risk.

Liquidity is a significant credit positive, underpinned by a very conservative asset allocation. As such, cash and stressed assets coverage on technical liabilities registered at 2.7x (FY19 3.7x), with the moderation caused by working capital absorption from the settlement of reinsurance balances. This resulted in the liquidation of short-term government securities worth KES 1.1 billion. However, a less material reduction was registered in the operational cash coverage, which stood at 46 months (FY19: 50 months). Liquidity metrics are expected to be sustained at similar levels, given management’s decision to maintain the current asset allocation and contained net technical provisions.

Earnings remain moderately strong over the review period, underpinned by high commission income mainly arising from group reinsurance arrangements, following the change in reinsurance strategy during FY17. In this respect, the entity recorded a 3-year underwriting margin of 10.0% (FY19: 15.9%). Although FY20 underwriting margin performance was slightly past break-even performance (FY19: -1.6%) due to an elevated operating expense ratio, somewhat moderating the earnings assessment, GCR notes the high quality of the book with gross underwriting margins having been maintained around 30% over the review period (FY20: 29.8%, FY19: 33.0%). The return on revenue remained within similar levels (FY20: 34.6%; FY19: 37.4%) balancing a reduction in investment income, on account of liquidation of financial assets, and unrealised gains on government securities. GCR expects earnings performance to be supported by the high-quality gross book over the medium term, potentially underpinning an improvement in net underwriting margins.

The insurer’s business profile is limited. With the entity’s gross premiums significantly impacted by an ongoing portfolio cleaning exercise and different sector sensitivities to the Covid-19 pandemic , market share and relative market share reduced to 2.3% (FY19: 2.8%) and 0.9x (FY19: 1.0x) respectively. Product diversification was sustained at similar levels, with three lines of business contributing significantly at gross level. We expect the business profile to withstand pressures on market share over the medium term, given premium growth and business retention initiatives.

Outlook statement

The Stable Outlook reflects expectations that the credit profile of AIG Kenya will be maintained, with a GCR CAR registering above 3x in the near-term. Cash and stressed assets coverage on technical liabilities is likely to continue measuring between 2.5x-2.9x, while asset allocation remains weighted towards short-term assets and government bonds. Underwriting profitability at net level is expected to improve drawing strength from the quality gross book (mainly dependant on current reinsurance strategy) and is unlikely to have a negative impact on liquidity and capitalisation over the short term. While market share is under pressure, we expect relative market share to be sustained at 0.9x while market share could range between 2.1% – 2.5%. In this respect, no material changes to the business profile are expected over the outlook horizon.

Rating triggers

The national scale financial strength rating is at its ceiling. Negative rating action may ensue if earnings reduce below expected levels or the entity displays weaker competitive position, registering a relative market share of below 0.8x.

Analytical contacts

Primary analyst David Mungai Analyst: Insurance Ratings
Nairobi, KE DavidM@GCRratings.com +254 73 218 8669
Committee chair Godfrey Chingono Deputy Sector Head: Insurance Ratings
Johannesburg, ZA GodfreyC@GCRratings.com +27 11 784 1771

Related criteria and research

Criteria for the GCR Ratings Framework, May 2019

Criteria for Rating Insurance Companies, May 2019

GCR Ratings Scales, Symbols & Definitions, May 2019

GCR Country Risk Scores, March 2021

GCR Insurance Sector Risk Scores, April 2021

Ratings history

AIG Kenya Insurance Company Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Financial Strength Initial National A(KE) Stable June 2009
Last National AAA(KE) Stable July 2020

Risk Score Summary

Rating Components and Factors Risk score
Operating environment 8.25
Country risk score 4.00
Sector risk score 4.25
Business profile (1.25)
Competitive position (0.50)
Premium diversification (0.75)
Management and governance 0.00
Financial profile 4.75
Earnings 0.75
Capitalisation 2.00
Liquidity 2.00
Comparative profile 1.00
Group support 1.00
Government support 0.00
Peer analysis 0.00
Subtotal Score 12.75
Hurdle rate 12.50
Total Score 12.50

Glossary

Premium The price of insurance protection for a specified risk for a specified period of time.
Primary Market The part of the capital markets that deals with the issuance of new securities.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Technical Liabilities The sum of Net UPR and Net OCR IBNR.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
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.

SALIENT POINTS OF ACCORDED RATINGS

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

The credit rating has been disclosed to the rated entity. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The information received from the entities and other reliable third parties to accord the credit rating included:

  • Audited financial statements as at 31 December 2020;
  • Four years of comparative audited financial statements to 31 December;
  • Full year budgeted financial statements for 2021;
  • Unaudited interim results to 30 March 2021; and
  • Other relevant documents.

image_pdfPDF View


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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.