Rating action
Nairobi, 13 November 2020 – GCR Ratings (“GCR”) has affirmed GA Insurance Limited’s (“GA Kenya”) national scale financial strength rating of A+(KE), with a Stable Outlook.
Rated Entity / Issue | Rating class | Rating scale | Rating | Outlook/Watch |
GA Insurance Limited | Financial strength | National | A+(KE) | Stable Outlook |
GA Kenya’s national scale financial strength rating reflects the strengths and weaknesses at group level, given that the insurer is the core operating entity of the group, accounting for 95% and 51% of gross premiums and assets at FY19 respectively. The group’s credit profile is anchored by sound risk adjusted capitalisation and earnings, balancing intermediate liquidity and business profile.
Risk adjusted capitalisation is assessed as strong, underpinned by consistent internal capital generation. Consequently, the group’s GCR capital adequacy ratio (“CAR”) slightly improved to 1.9x (FY18: 1.8x), while GA Kenya displayed sound statutory solvency of 213% at FY19 (FY18:184%). However, capital quality is negatively impacted by concentration to investment property, which accounted for 80% of the group’s capital base at FY19 (FY18: 92%). GCR expects an improvement in capitalisation over the medium term, driven by a conservative dividend policy, coupled with sustained earnings strength from the core operating entity and the Tanzanian subsidiary.
Earnings are viewed to be moderately strong, underpinned by a favourable claims experience and sound investment income which offsets the pressures arising from operating expenses. As such, the group’s five-year operating margin slightly improved to 31% (FY18: 29%), while GA Kenya registered a corresponding underwriting margin of 11% (FY18: 10%). GCR expects earnings strength to be sustained over the medium term, with the group and GA Kenya projected to register rolling five-year operating and underwriting margins of around 32% and 12% in FY20 respectively.
Liquidity is intermediate, with cash and stressed financial assets coverage of net technical obligations improving to around 1.4x at FY19 (FY18: 1.3x), while the coverage of operational cost requirements equated to 14 months (FY18: 14 months). GCR expects liquidity metrics to be maintained within similar levels over the rating horizon, given elevated exposure to illiquid assets. However, demonstrated consistency in investing operating cash flows into government securities in recent years is positive to the factor’s assessment, forming a key rating consideration over the medium term.
The business profile is viewed to be limited. In this regard, the group’s market share and relative market share measured at 4% and 1.8x (FY18: 3.7% and 1.7x) respectively, with the core operating entity controlling a market share and relative market share of 5% and 1.9x respectively (FY18: 4.7% and 1.8x).The business mix is viewed to be well diversified with four lines of business contributing materially to revenue. GCR expects the business profile to remain at similar levels over the medium term.
Outlook statement
The Stable Outlook reflects expectations of the credit profile being maintained, with the group’s GCR CAR registering between 1.8x – 2x in the near term. While capital concentration to investment property is anticipated to continue moderating over the corresponding period, no material changes are expected over the short term, with the liquidity coverage ratio likely to continue measuring below 1.5x. Earnings are likely to be sustained within the current range and no material changes to the business profile are expected in the outlook horizon.
Rating triggers
Positive rating action may follow a sustained improvement in risk adjusted capitalisation and liquidity, while the business profile is maintained at similar levels. Conversely, should liquidity deteriorate beyond expected levels or earnings fundamentals supporting credit protection metrics reduce, negative rating action may ensue.
Analytical contacts
Primary analyst | David Mungai Mburu | Analyst: Insurance Ratings |
Nairobi, KE | DavidM@GCRratings.com | +254 20 367 3618 |
Secondary analyst | Linda Matavire | Analyst: Insurance Ratings |
Johannesburg, ZA | LindaM@GCRratings.com | +27 11 784 1771 |
Committee chair | Tichaona Nyakudya | Senior Analyst: Insurance Ratings |
Johannesburg, ZA | TichaonaN@GCRratings.com | +27 11 784 1771 |
Related Criteria and Research
Criteria for the GCR Ratings Framework, May 2019 |
Criteria for Rating Insurance Companies, May 2019 |
GCR Ratings Scales, Symbols & Definitions, May 2019 |
GCR Country Risk Scores, May 2020 |
GCR Insurance Sector Risk Scores, July 2020 |
Ratings history
GA Insurance Limited
Rating class | Review | Rating scale | Rating class | Outlook/Watch | Date |
Claims paying ability | Initial | National | A(KE) | Stable | December 2016 |
Financial strength | Last | National | A+(KE) | Stable | October 2019 |
Risk score summary
Rating components and factors | Risk scores |
Operating environment | 8.25 |
Country risk score | 4.00 |
Sector risk score | 4.25 |
Business profile | (0.50) |
Competitive position | 0.00 |
Premium diversification | (0.50) |
Management and governance | 0.00 |
Financial profile | 1.75 |
Earnings | 1.00 |
Capitalisation | 1.00 |
Liquidity | (0.25) |
Comparative profile | 0.00 |
Group support | 0.00 |
Government support | 0.00 |
Peer analysis | 0.00 |
Total score | 9.50 |
Glossary
Premium | The price of insurance protection for a specified risk for a specified period of time. |
Provision | The amount set aside or deducted from operating income to cover expected or identified loan losses. |
Rating Horizon | The rating outlook period |
Rating Outlook | See GCR Rating Scales, Symbols and Definitions. |
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. |
Retention | The net amount of risk the ceding company keeps for its own account. |
Risk | The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives. |
Securities | Various instruments used in the capital market to raise funds. |
Security | One of various instruments used in the capital market to raise funds. |
Senior | A security that has a higher repayment priority than junior securities. |
Short Term | Current; ordinarily less than one year. |
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. |
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating is based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating is an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to the rated entity. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The information received from the entities and other reliable third parties to accord the credit rating included:
- Draft financial results as at 31 December 2019;
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements for 2020;
- Unaudited interim results to 30 June 2020; and
- Other relevant documents.