Johannesburg, 27 Oct 2014 — Global Credit Ratings has today affirmed the national scale financial strength rating assigned to APA Life Assurance Limited of BBB+(KE); with the outlook accorded as Stable. The rating(s) are valid until 09/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to APA Life Assurance Limited (“APA Life”) based on the following key criteria:
In line with the group’s strategy to enhance the insurance franchise under a single brand, the assurer’s name was changed in November 2013 to APA Life from Apollo Life Assurance Limited. APA Life is wholly owned by Apollo Investments Ltd, which also has controlling stakes in APA Insurance Ltd and Apollo Asset Management Co. Ltd. Recently in October 2014, Leapfrog (a micro insurance investment fund) sold its minority stake in Apollo Investments Ltd to Swiss Re Direct Investment Company Ltd (a subsidiary of the Swiss Re Group).
APA Life continues to reflect a constrained market profile. Positively, the recent revision of the company’s operational strategy bodes well for future business growth, evidenced by the strong revenue traction gained in F13 and for the year to date to June F14. The new growth strategy has also included a re-entrance into the individual life market (in November F13), as well as the integration of a new robust IT management system which allows for greater underwriting efficiencies and managerial oversight. The successful strategic execution in terms of delivering sustained growth and profitability represents a key rating consideration going forward.
Operating profitability in the life book has evidenced an improved trend over the past two years. Further, the pension portfolio continued to contribute positively to net earnings, although historic volatility in this book is noted. In this regard, steady scale enhancement and balanced asset management would need to be sustained to ensure a consistently robust bottom line. As such, following a sharp contraction in shareholders’ interest in F11, capital accumulation has since seen a steady recovery, underpinned largely by robust unrealised valuation gains and shareholder funding. Statutory solvency coverage continued to register above 3x at FYE13.
Cash and equivalents advanced to a sizable KShs1.4bn at FYE13 (doubling the balance relative to two years prior), supporting adequate liquidity coverage measures in the life book. APA Life’s exposure to capital market volatility is, however, considered elevated, with a high 42% of shareholder investments pertaining to listed shares.
Overall, the assurer’s technical risk management is viewed by GCR to be fairly limited. In this regard, a more risk-based approach to capital measurement and management should be reviewed in line with the continued development of the risk management framework (particularly in view of the company’s aggressive growth trajectory). Furthermore, a detailed actuarial assessment of asset-liability matching is yet to be undertaken.
An upgrade or a positive rating outlook could develop off a demonstrated ability to sustain a sound growth trajectory (translating to broader market penetration), achieved in conjunction with a stable earnings trajectory, sound capital adequacy, appropriate asset-liability matching and a more effective risk management framework. A sustained weakening in operating performance and net profitability could lead to a downward movement of the rating. Furthermore, capital erosion due to deteriorating asset quality thus impeding statutory coverage and capital adequacy, or inappropriate asset liability matching, may lead to a downgrade.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (Nov/2009)
Financial strength: A-(KE)
Last rating (Sep/2013)
Financial strength: BBB+(KE)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Life Assurance Companies (updated July 2014)
RATING LIMITATIONS AND DISCLAIMERS
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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.
APA Life Assurance 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 APA Life Assurance Limited with no contestation of the rating.
The information received from APA Life Assurance Limited and other reliable third parties to accord the credit rating(s) included the 2013 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements for 2014, unaudited year to date management accounts to 30 June 2014, the 2014 reinsurance cover notes, the 2013 actuarial valuation statement, the 2013 Financial Condition Report, 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 APA Life Assurance Limited’s rating of BBB+(KE); Outlook Stable.