Johannesburg, 08 July 2016 — 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 is valid until June 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to First Assurance Company Limited (“First Assurance”) based on the following key criteria:
First Assurance’s risk adjusted capitalisation measured at strong levels at FYE15. Capital generation has been supported by sound retained profits and more recently an injection of KES400m, with a further KES300m planned over the short to medium term. The capital injection formed part of the ownership buyout by Barclays Africa Group Limited (“BAGL”, or “the group”) in 2015. The international solvency margin equated to a higher 99% at FYE15 (FYE14: 76%), with healthy risk adjusted capital adequacy supported by the reduction in market risk during the year. As such, GCR expects risk adjusted capitalisation to remain within a strong range.
Liquidity metrics measured within a strong range, with cash coverage of net technical liabilities registering at 1x at FYE15 (FYE14: 0.8x). Similarly the claims cash cover ratio equated to 17 months (FYE14: 15 months). Liquidity metrics are expects to remain within a strong range over the rating horizon, underpinned by the insurer’s asset allocation strategy.
Earnings capacity has measured at a strong aggregate level over the review period, underpinned by consistent underwriting profits and sound investment income (a function of the sizeable investment portfolio). Nevertheless, margin compression has been evidenced over the last two years (2-year average: 1%), largely due to an increasing operating expense base, given an elevated (albeit stable) net incurred loss ratio. Going forward, earnings capacity is expected to be supported by the large quantum of investment returns, while management aims to strengthen operating profitability.
First Assurance’s business profile is sound, underpinned by a moderately strong competitive position and limited product risk. In this respect, the insurer’s market share remained relatively stable at 3.2 % of total industry gross premiums in FY15 (FY14: 3.4%). Going forward, the insurer expects to cement its competitive position, supported by strategic benefits and financial support from the group. As such, GCR expects the insurer’s competitive position to remain within a moderately strong level over the rating horizon.
Reinsurance counterparties demonstrate an intermediate aggregate level of counterparty strength, while maximum deductibles are limited to levels which are viewed to be conservative relative to capital.
Key rating drivers that could lead to positive rating actions include a strengthening in market profile and/or profitability, while maintaining favourable risk-adjusted capitalisation. Negative rating action could occur if First Assurance were to evidence a material deterioration in operating performance, reduced risk-adjusted capitalisation levels below GCR’s expectations or a material increase in investment risk.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2010)|
|Claims paying ability: BBB+(KE)|
|Last rating (August 2015)|
|Claims paying ability: A(KE)|
|Primary Analyst||Committee Chairperson|
|Rodwell Chevure||Marc Chadwick|
|Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Criteria for Rating Long Term Insurance Companies, updated July 2015
First Assurance rating reports, 2010-2015
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
|Assets||The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’|
|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.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|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.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|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 Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|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.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|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. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|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.|
|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.|
|Underwriting||The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.|
For a detailed glossary of terms 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.
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 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 included;
- Audited financial results as at 31 December 2015
- 4 years of comparative numbers
- Unaudited interim results as at 31 March 2016
- Budgeted financial statements for 2016
- Actuarial valuation statement for 2015
- Financial Condition Report 2015
- The current year reinsurance cover notes
- Corporate governance and enterprise risk framework
- Other non-public statistical information
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
GCR affirms First Assurance Company Limited’s rating of A(KE); Outlook Stable.