RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) on Apollo Life Assurance Limited based on the following key criteria:
Apollo Life Assurance Limited (“Apollo”) is a 100% controlled subsidiary of Apollo Investments Limited, which has a stable of financial institutions that include APA Insurance Limited and Apollo Asset Management Company Limited. The assurer continues to leverage off its parent’s market presence and other group operational synergies, diversifying its product mix and extending its branch network to complement its current distribution channels. This is expected to engender a sustainable growth platform over the longer term.
Following a sharp contraction in shareholders’ interest in F11 (driven by distributions and fair value losses), the position had improved materially by 3Q F13, due to a KShs100m capital injection by shareholders, fair value gains and retained earnings. Coverage of actuarial liabilities therefore recovered from FYE11 lows, and management intends raising statutory coverage to 5.7x by FYE13. Apollo continued to de-risk the balance sheet in F12, increasing cash & equivalents to 53% of total assets by FYE12 (from a low of 26% as at FYE08). According to management, investments backing life operations covered the life fund by a higher 1.2x by FYE12 (FYE11: 1.1x). GCR, however, still notes the share capital exposure to listed equities (at 51% of allocated assets as at FYE12, against an internal target of 20%-30%).
The assurer has reported operating surpluses over most of the review period, and although cognisance is taken of the deflationary impact of the higher benefits payable to deposit administration in F12, GCR notes the prudence of more conservative reserving. According to management, enhanced scale should ensure sustainable surpluses over the medium to long term, although above inflation escalation in overheads in recent years is noted. In this regard, a steady enhancement of scale and balanced asset management would need to be sustained to ensure a consistently robust bottom line.
Looking ahead, a demonstrated ability to sustain a sound growth trajectory (translating to broader market penetration), achieved in conjunction with a stable earnings trajectory, appropriate asset-liability matching and a more effective risk management framework would exert upward rating pressure. However, material capital erosion, due to erratic operating performance or large, persistent unrealised losses (thereby impeding statutory coverage and capitalisation levels), would warrant downward rating action.
NATIONAL SCALE RATINGS HISTORY | |
Initial rating (Nov/2009) | |
Financial Strength: A-(KE) | |
Outlook: Stable | |
Last rating (Aug/2012) | |
Financial Strength: BBB+(KE) | |
Rating watch: Yes | |
ANALYTICAL CONTACTS | |
Primary Analyst | |
Patricia Zvarayi | |
Senior Analyst | |
+27 11 784 1771 | |
patricia@globalratings.net | |
Committee Chairperson | |
Marc Joffe | |
Sector Head: Insurance | |
+27 11 784 1771 | |
joffe@globalratings.net | |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Criteria for Rating Life Assurance Companies
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.
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/RATING-SCALES-DEFINITIONS. 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.
Apollo 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 Apollo Life Assurance Limited with no contestation of the rating.
The information received from Apollo Life Assurance Limited and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements for 2013, year to date management accounts to 30 September 2013, the 2013 reinsurance cover notes, actuarial valuation statement, debtors provisioning policy document, ERM processes/framework (including catastrophe management framework), reserving methodologies, capital management policy.