Johannesburg, 13 Oct 2015 — 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 is valid until September 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to APA Life Assurance Limited (“APA Life”) based on the following key criteria:
APA Life’s liquidity position is viewed as strong, with cash (solely backing life operations) coverage of policyholder liabilities reported at 0.9x in FYE14. Liquidity is expected to be maintained at sound levels going forward. APA life demonstrates an intermediate level of asset-liability matching, with management looking to review its investment strategy going forward, following the finalisation of an external assessment.
The revision of the business strategy in 2013 has delivered strengthened gross premium growth since its implementation. As such, whilst this has seen APA Life’s overall market share increase, the company’s relative competitive positioning remains limited. APA Life has registered consecutive operating surpluses over the past three years. However, year on year the operating margin has exhibited a high degree of volatility. The insurer’s limited scale continues to be impacted by fluctuations in benefit payouts, impeding earnings capacity.
Capital adequacy has registered at an intermediate level over the review period. Capital adequacy is constrained by the high level of market risk exposure and inconsistent profit retention. Statutory coverage registered at 2x at FYE14 (FYE13: 3x). The quality of the insurer’s reinsurance counterparts is considered sound, with all of the above listed entities reflecting domestic financial strength ratings in the A band or above.
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.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (November 2009)|
|Financial strength: A-(KE)|
|Last rating (September 2014)|
|Financial strength: BBB+(KE)|
|Primary Analyst||Committee Chairperson|
|Sheri Few||Marc Chadwick|
|Senior Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
|Junior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Life Insurance Companies, updated July 2015
APA Life rating reports, 2009-2014
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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Actuarial||Having to do with insurance mathematics.|
|Assets||The items on the balance sheet of the insurer which show the book value of property owned.|
|Assurance||Terminology used to describe life insurance.|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Bond||A certificate issued by a government or corporation as evidence of a debt.|
|Capacity||The largest amount of insurance or reinsurance available from a company.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Insurance||A formal social device for reducing risk by transferring the risks of several individual entities to an insurer.|
|Insured||A person or organisation covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss||The happening of the event for which insurance pays.|
|Long term (“LT”)||Not current; ordinarily more than one year.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business. Also, the total securities owned by an insurer.|
|Provision||A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.|
|Rate||The pricing factor upon which the insurance buyer’s premium is based.|
|Rating||The statistical process by which insurers determine risks and pricing for the basic classes of insurance.|
|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.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|Securities||Evidences of a debt or of ownership, such as stocks, bonds, and checks.|
|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.|
|Statutory||Required by or having to do with law or statute.|
|Surplus||The excess of assets over liabilities.|
|Valuation||Estimation of the value of an item, usually by appraisal.|
For a detailed glossary of terms utilised in this announcement please click here
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;
- Audited financial results of Company as at 31 December 2014
- Four years prior audited financial statements
- Unaudited interim results as per 31 March 2015
- Budgeted financial statements for 2015
- Financial Condition Report 2014
- Statutory Returns 2014
- The current year reinsurance/retrocession cover notes
- Enterprise Risk Management
- 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.