Johannesburg, 29 Aug 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to AIG Kenya Insurance Company Limited of AA-(KE); with the outlook accorded as Stable. The rating(s) are valid until 08/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to AIG Kenya Insurance Company Limited (“AIG Kenya”) based on the following key criteria:
AIG Kenya’s capitalisation is considered moderately strong and is supportive of AIG Kenya’s standalone credit strength. GCR expects that the insurer will continue to maintain a rating-supportive level of risk-adjusted capitalisation going forward through favourable net earnings, while dividend distributions to its parent are kept in accordance with historical norms. Capital support is enhanced by the insurer’s conservative investment policy, which mitigates capital risk in the event of market volatility, while also translating into comfortable liquidity metrics. GCR views AIG Kenya’s liquidity metrics as a rating strength and expects the measures to remain at strong levels in the medium term.
The sound underwriting track record displayed is viewed positively, although the softening trend in margins over recent periods is noted. In view of the relatively well contained loss performance, increased delivery cost efficiency is required by the insurer to sustain competitive earnings capacity. The high degree of reinsurance support underpins significant underwriting capacity, while also displaying the high level of integration of the insurer into the group’s international structure. While counterparty risk is inherent in the group-wide risk transfer (with the majority of cessions placed internally within the group), comfort is derived from the reinsurer’s strong credit rating.
The rating is constrained by the insurer’s business profile, which reflects a relatively limited market position, and an intermediate level of earnings diversification across lines of business.
Overall, AIG Kenya’s standalone rating derives upliftment from implicit group support, as it is considered to be strategically important. This view is supported by high levels of operational alignment and guidance, significant reinsurance arrangements through group companies, and comparability of capital and risk management frameworks.
Upward rating action could occur if AIG Kenya achieves a sustained improvement in risk-adjusted capitalisation and market position, whilst maintaining a consistently favourable operating performance. Conversely, the rating may be downgraded should the insurer exhibit a deterioration in capital adequacy below the level required to support the rating, and/or a weakening in underwriting or operating performance that is not in line with GCR’s expectations. Material downward pressure on the ratings of the ultimate parent, or a change in the strategic importance of AIG Kenya to the group, may also warrant rating action.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (Jun/2009)
Claims paying ability: A(KE)
Last rating (Aug/2013)
Claims paying ability: AA-(KE)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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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.
AIG Kenya 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 AIG Kenya Insurance Company Limited with no contestation of the rating.
The information received from AIG Kenya Insurance Company Limited 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 June 2014, the 2014 reinsurance cover notes, the 2013 Financial Condition Report, risk management processes/framework, capital management policy and other non-public statistical information on the company and/or industry.
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 affirms AIG Kenya Insurance Company Limited’s rating of AA-(KE); Outlook Stable.