Johannesburg, 28 Aug 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to East African Underwriters Limited of A-(UG); with the outlook accorded as Stable. The rating(s) are valid until 6/2014.
Global Credit Ratings has accorded the above credit rating(s) on East African Underwriters Limited based on the following key criteria:
Incorporated in 1993, East African Underwriters Limited (“EA Underwriters”) operates as a short term insurer in the Uganda insurance market, covering the full spectrum of associated risks, with a 5% market share captured at year-end F12. The insurer is 100% owned by Muljibhai Madhvani & Co Ltd, which is itself wholly owned by the Madhvani family, which has widespread business interests in Uganda and the greater East African region.
The rating recognises the sound level of capital accumulation displayed in recent years, which paired with a conservative approach to risk retention has seen key solvency metrics advance to healthy levels in F12, well above industry norms. Whilst solvency is forecast to ease somewhat in F13 amidst strong premium growth, relative capitalisation is anticipated to remain sound over the short to medium term. Further, the conservative investment stance and relative size of the portfolio are supportive of a low risk balance sheet and robust key liquidity metrics. Nonetheless, an elevated degree of institutional cash concentration is evident, with around 75% of total cash reserves held with two unrated institutions. Underpinned by an improved claims experience, EA Underwriters registered its second consecutive underwriting profit in F12, albeit financial flexibility remains undermined by high relative operating costs. A further challenge is the high level of policyholder and broker concentration, as well as the continued reliance on motor to support underwriting profitability, which implies heightened operational risk. In addition, the lack of affiliation with an established insurance group limits market penetration and corporate profiling.
A sustained positive underwriting trend over the medium term, whilst also maintaining key solvency and liquidity metrics at similar levels. Further, an improved diversification of the business mix, coupled with a more balanced approach to business procurement would be positively viewed.
A marked weakening in underwriting profitability over a sustained period, accompanied by a sharp decline in key credit protection metrics below forecast levels. Further, the adoption of a significantly more agressive investment strategy (thus unduly compromising liquidity) could exert downward rating pressure.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Apr/2012)
Claims paying ability: A-(UG)
Last rating (Apr/2012)
Claims paying ability: A-(UG)
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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.
East African Underwriters 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 East African Underwriters Limited with no contestation of the rating.
The information received from East African Underwriters Limited and other reliable third parties to accord the credit rating included 2012 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements for 2013, most recent year to date management accounts to April 2013, reinsurance cover notes for 2013, reserving methodologies, statutory returns and other non-public statistical information.