Johannesburg, 29 July 2014 — Global Credit Ratings (“GCR”) has today affirmed the national scale financial strength rating assigned to CfC Life Assurance Limited (“CfC Life”) of A+(KE); with the outlook accorded as Stable. The rating(s) are vaild until 06/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) on CFC Life Assurance based on the following key criteria:
CfC is a wholly-owned subsidiary of Liberty Kenya Holdings Limited (“LKHL”), which reflected a market capitalisation of US$107.3m as at 21 July 2014. As part of the strategic realignment of the group, insurance activities were deconsolidated in F12, resulting in the registering of CfC Life as a pure life assurer and the establishment of The Heritage Insurance Company Kenya Limited (“Heritage”) as a dedicated short term insurance business.
The direct affiliation with strongly rated Liberty Holdings Limited and Standard Bank Group Limited as ultimate majority shareholders in the business continues to enhance the corporate profile, whilst the on-going operational and technical support provided fosters robust underwriting disciplines. Furthermore, risk management disciplines are notably enhanced by an enterprise risk management framework (developed in assistance with Liberty South Africa), which is viewed to contribute towards financial stability and the business’s strong capital management.
The size of the investment portfolio and well balanced asset mix therein is supportive of adequate asset-liability matching. Reflective of this, invested assets backing life operations covered the life fund by a sound 1.1x, whilst deposit administration liabilities are underpinned largely by government securities with varying maturity profiles. Moreover, post the business deconsolidation, CfC Life registered healthy net surpluses over the past two years, underpinned by a sustained strong operating performance (and in particular favourable claims experience). Nonetheless, compared to its peers the assurer’s cost base remains notably elevated, with improved cost efficiencies deemed imperative to sustain profitability at a competitive level going forward.
Note is taken of the revision of accounting principles during F13, which resulted in a comprehensive revaluation of various balance sheet positions year-on-year. Attesting to the impact thereof, statutory solvency eased slightly in F13, albeit remaining at a comfortable level, whilst CAR coverage equated to 1.75x in F13. In GCR’s view, CAR coverage approximating management’s internal benchmark of 2x is reflective of appropriate capital strength. The historic focus on individual life business remains a limiting factor in the attainment of critical mass, thus inhibiting scale efficiency benefits. Whilst on-going efforts to diversify into group life risks are positively viewed, given the strong competitive dynamics and slow conversion rate associated with this type of business, the risk premium base is likely to remain subdued relative to its peers over the short to medium term.
An increased level of market penetration (particularly within the group life space), coupled with the maintaining of key credit protection metrics at current levels could give rise to an upward rating adjustment over the medium term. Conversely, a sustained weakening in the assurer’s financial profile (with key credit protection metrics softening markedly against historic norms) could impact negatively on the rating. Exemplary of this, a protracted deterioration in CAR coverage well below the current comfort level would be negatively viewed.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (May/2013)
Financial strength: A+(KE)
Last rating (May/2013)
Financial strength: A+(KE)
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Life Assurance Companies (July 2013)
CfC Life Assurance Limited rating report 2013.
The Heritage Insurance Company Kenya Limited (“Heritage”) rating reports 2000-2014.
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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.
CFC Life Assurance 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 CFC Life Assurance with no contestation of the rating.
The information received from CfC Life Assurance and other reliable third parties to accord the credit rating included the audited annual financial statements for F13 (plus four years of comparative numbers), latest internal and/or external report to management, full year F14 detailed budgeted financial statements, reinsurance cover notes for 2014 and most recent year-to-date management accounts to 31 March 2014. In addition, information specific to the rated entity and/or industry was also received.
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.