Johannesburg, 02 June 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to First Assurance Company Limited of A-(KE); with the outlook accorded as Stable. The rating(s) are valid until 05/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to First Assurance Company Limited (“First Assurance”) based on the following key criteria:
The insurer originally traded as Prudential Assurance Company of Kenya Ltd (a subsidiary of The Prudential Assurance Company Ltd), concentrating mainly on life business. In subsequent years the general business arm grew strongly, with the company changing its name to First Assurance Company Limited in January 1991, following its incorporation as a wholly owned Kenyan company. Privately owned First Assurance Investments Ltd holds 83% of the insurer. Albeit slower than historic years, First Assurance continued with its robust growth trajectory in F13. While the growth achieved has improved the company’s franchise within the non-life market, the insurer remains positioned within the highly fragmented second-tier grouping (reflecting a non-life market share of around 4%).
The rating is underpinned by First Assurance’s solid track record of profitability, which has been a function of operational expense containment, and demonstrates the insurer’s ability to achieve and sustain a good earnings stream, with internal capital generation supported by a high level of profit retention. However, the company’s ability to achieve a stronger market profile (in view of its modest market share), while writing profitable business represents a level of execution risk. The company’s non-life division displays moderate capitalisation. International solvency strengthened to a review high of 69% in F13 (F12: 50%), supported by a change in the medical reinsurance programme. For F14, solvency is forecast to remain sound at 61%. Almost three quarters of First Assurances’s investment portfolio comprises cash based assets, giving rise to adequate liquidity metrics. While a level of capital risk is implied by the exposure to property investments (representing 50% of FYE13 capital), this is considered manageable in relation to the company’s loss absorption capacity. The insurer’s portfolio is indicative of the market bias towards medical and motor business on a net basis. Thus, the high loss volatility inherent in these lines exacerbates underwriting risk.
An upward movement in the rating/outlook could develop if underwriting and operating results display a sustained strengthening, while growing the insurer’s market profile and maintaining a strong level of risk-adjusted capitalisation. Conversely, a significant reduction in capital adequacy or the failure to maintain a sound level of underwriting profitability could add negative pressure to the ratings.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (Sep/2010)
Claims paying ability: BBB+(KE)
Last rating (May/2013)
Claims paying ability: A-(KE)
|Primary Analyst||Committee Chairperson|
|Sheri Few||Marc Chadwick|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013)
Criteria for Rating Life Assurance Companies (July 2013)
First Assurance Company Limited (“First Assurance”), rating reports 2010-2013
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.
First Assurance Company 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 First Assurance Company Limited with no contestation of the rating.
The information received from First Assurance Company 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 2014 budgeted financial statements, year to date management accounts to March 2014, the 2014 reinsurance cover notes, 2013 draft Financial Condition Report, 2013 actuarial valuation and 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.