Announcements Insurance Rating Alerts

GCR affirms GA Insurance Limited’s national scale financial strength rating of A+(KE); Outlook Stable

Rating Action

Johannesburg, 09 October 2019 – GCR Ratings (“GCR”) has affirmed GA Insurance Limited’s (“GA Kenya”) national scale financial strength (formerly claims ability) 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

GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for GA Kenya was placed ‘Under Criteria Observation’. GCR finalised the review for GA Kenya under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for GA Kenya has been revised in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.

Rating Rationale

The national scale financial strength rating of GA Kenya reflects the strengths and weaknesses at group level, given that the insurer is the core operating entity of the group, accounting for 96% and 61% of premiums and assets respectively. The group reflects a sound financial profile, supported by strong earnings and risk adjusted capitalisation. Furthermore, GA Kenya has an intermediate business profile, underpinned by solid market positioning and well diversified premiums.

GA Kenya’s earnings are strong, as evidenced by a five year underwriting margin of 10% (FY18: 13%; FY17: 13%), while return on revenue averaged 24%. Cognisance is taken of the partial dilution in earnings strength stemming from exposure to other subsidiaries. This notwithstanding, GCR expects persistence in earnings strength, supported by the insurer’s balanced risk participation, and a conservative reinsurance strategy.

Strong risk adjusted capitalisation is a function of a sizeable capital base and well contained underwriting risks. However, this is counteracted by a fairly high market exposure (with investment property accounting for 92% of capital at FY18). Furthermore, while internal capital generation has been sound throughout the review period, this has resulted in increased exposure to illiquid assets, thus moderating the capitalisation assessment. Capital growth is expected be maintained at strong levels going forward, along a prudent underwriting philosophy, while risky asset exposure remains, supporting GCR’s view of stable risk adjusted capitalisation over the outlook horizon.

Liquidity is viewed to be intermediate, with stressed financial asset coverage of net technical liabilities registering at 1.2x (FY17: 1.1x), while operational cash coverage measured at 24 months (FY17: 19 months) at FY18. GCR expects liquidity strength to be maintained over the rating horizon, albeit with the management of subsidiaries liquidity requirements constituting a key rating input going forward.

The core operating entity, GA Kenya, evidences a healthy business profile, supported by an average competitive position and a well-diversified portfolio with four lines of business contributing materially to revenue. GA Kenya’s competitive position is underpinned by strong brand recognition and entrenched relationships. In this respect, the insurer’s market share has been maintained at 5% over the past two years and is expected to be maintained within a similar range going forward.

Outlook Statement

The stable outlook reflects expectations of strong earnings placing upward pressure on available capital and liquidity, albeit offset by exposure to illiquid assets.

Rating Triggers

Positive rating action may stem from a sustainable improvement in earnings and strengthening in liquidity. Conversely, downward rating pressure may arise from persistent earnings strain emanating from non-core operating entities, impacting negatively on capitalisation and liquidity.

Analytical Contacts

Primary analyst
Yvonne Mujuru
GodfreyC@GCRratings.com +27 11 784 1771

Yvonne Mujuru

Sector Head: Insurance Ratings
Johannesburg, ZA YMujuru@GCRratings.com +27 11 784 1771
Secondary analyst Linda Matavire Insurance Associate
Johannesburg, ZA LindaM@GCRratings.com +27 11 784 1771
Committee chair Godfrey Chingono Deputy Sector Head: Insurance Ratings
Johannesburg, ZA GodfreyC@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, June 2019
GCR Insurance Sector Risk Scores, July 2019

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
Last National A+(KE) Stable November 2018

Risk Score Summary

Risk score GA Insurance Limited
Operating environment 9.25
Country risk score 4.50
Sector risk score 4.75
Business profile (0.50)
Competitive position 0.00
Premium diversification (0.50)
Management and governance 0.00
Financial profile 1.50
Earnings 1.00
Capitalisation 1.00
Liquidity (0.50)
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 10.25

Glossary

Accident An unplanned event, unexpected and undesigned, which occurs suddenly and at a definite place.
Agency An insurance sales office which is directed by an agent, manager, independent agent, or company manager.
Assets A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Budget Financial plan that serves as an estimate of future cost, revenues or both.
Capacity The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.
Capital The sum of money that is invested to generate proceeds.
Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
Capital Adequacy A measure of the adequacy of an entity’s capital resources in relation to its risks.
Cash Funds that can be readily spent or used to meet current obligations.
Catastrophe An event, which causes a loss of extraordinary magnitude.
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.
Contract An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the contract.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Diversification Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
Equity Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.
Experience A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time period.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.
Interest Money paid for the use of money.
Interest Rate The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.
Investment Income The income generated by a company’s portfolio of investments.
Investment Portfolio A collection of investments held by an individual investor or financial institution.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
Liquidity The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Loss The happening of the event for which insurance pays.
Market Risk Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.
Net Profit Trading/operating profits after deducting the expenses detailed in the profit and loss account such as interest, tax, depreciation, auditors’ fees and directors’ fees.
Net Retention The amount of insurance that a ceding company keeps for its own account and does not reinsure.
Operational Risk The risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. This includes legal risk, but excludes strategic risk and reputational risk.
Personal Lines Types of insurance, such as auto or home insurance, for individuals or families rather than for businesses or organisations.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.
Policyholder The person in actual possession of an insurance policy.
Pool An organisation of insurers or reinsurers through which particular types of risk are underwritten and premiums, losses and expenses are shared in agreed-upon amounts.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Reinstatement The resumption of coverage under a policy, which has lapsed.
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.

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 was based solely on the merits of rated entities, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to GA Insurance Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

GA Insurance Limited participated in the rating process via face-to-face 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:

  • Audited financial results as at 31 December 2018;
  • Four years of comparative audited financial statements to 31 December
  • Full year budgeted financial statements for 2019;
  • Unaudited interim results to 31 March 2019; check if not 30 June accounts?
  • Reinsurance cover for 2019; and
  • Other relevant documents.


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