Announcements

GCR affirms GA Insurance Limited’s rating of A(KE); Outlook Positive.

Johannesburg, 15 November 2017 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to GA Insurance Limited of A(KE), with the outlook accorded as Positive. The rating is valid until November 2018.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to GA Insurance Limited (“GA Kenya”) based on the following key criteria:

GA Kenya’s rating was affirmed at A(KE), supported by strong risk adjusted capitalisation, healthy earnings capacity and a strong business profile, which are expected to be sustained at similar levels over the rating horizon. The outlook was placed on positive reflecting the potential for upward rating movement should the insurer’s liquidity remain at strengthened levels.

Liquidity metrics improved to a moderately strong level from intermediate levels over the greater part of the review period. This was largely due to sound operational cash flow generation, with funds placed in liquid assets. Accordingly, cash coverage of net technical provisions equated to a higher 0.7x at FY16 (FY15: 0.5x; review period average: 0.5x), while the claims cash cover ratio registered at 24 months (FY15: 21 months). In GCR’s view, the insurer has potential for sustained liquidity strength over the rating horizon, underpinned by management’s commitment to maintain conservative asset allocation.

The insurer reflects strong risk adjusted capitalisation, supported by a sizeable capital base catering for the quantum of insurance risk and market exposure. Accordingly, the international solvency margin remained high at 117% at FY16 (FY15: 112%; review period average: 109%). Sound internal capital generation, in tandem with well contained dividend distributions are likely to sustain strong risk adjusted capitalisation going forward. Furthermore, the maximum net deductibles per risk and event are limited to conservative levels relative to capital, while the panel of reinsurers reflects a strong level of aggregate credit strength.

GA Kenya’s earnings capacity is viewed to be healthy, underpinned by moderately strong underwriting profitability and sound investment returns. In this respect, the insurer’s aggregated underwriting margin equated to 7%, while the ROaE registered at 21% over the last five years. GCR views the insurer’s track record as indicative of medium term earnings capacity. While asset risk is viewed to be intermediate (with high risk assets corresponding to 98% of shareholders’ funds at FY16; FY15: 113%), note is taken of the insurer’s sound earnings capacity and strong risk adjusted capitalisation, which in GCR’s view, positions the insurer to absorb a degree of potential market volatility.

The business profile is viewed to be strong, supported by enhanced earnings diversification (with four lines of business each contributing more than 10% of gross premiums). This is further reinforced by the insurer’s moderately strong competitive position. In this respect, GA Kenya’s share of short term industry gross premiums equated to 4% in FY16. GCR expects the insurer to defend its competitive position, supported by strong brand recognition and well-established distribution channels.

The rating could be upgraded if liquidity is sustained at strengthened levels. This would need to be supported by risk adjusted capitalisation and earnings capacity remaining at strong and healthy levels, respectively. Conversely, downward rating pressure may emanate from risk adjusted capital adequacy deteriorating below expectations and/or sustained weakening in net profitability. in operating performance.

NATIONAL SCALE RATINGS HISTORY

   
Initial/last rating (December 2016)    
Claims paying ability: A(KE)    
Outlook: Stable

   

ANALYTICAL CONTACTS

Primary Analyst     Secondary Analyst
Yvonne Mujuru     Nyasha Chikwengo
Sector Head: Insurance Ratings     Credit Analyst
(011) 784-1771     (011) 784-1771
ymujuru@globalratings.net     nyashac@globalratings.net

Committee Chairperson

     
Susan Hawthorne      
Senior Credit Analyst      
(011) 784-1771      
susanh@globalratings.net      

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2017

GA Kenya rating report, 2016

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.

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.

GA Insurance 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 GA Insurance Limited with no contestation of the rating.

The information received from GA Insurance Limited and other reliable third parties to accord the credit rating included:

  • The audited financial results as at 31 December 2016
  • Unaudited interim results to 30 June 2017
  • Budgeted financial statements for 2017
  • Financial Condition Report 2016
  • The current year reinsurance cover notes
  • Other relevant company specific 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 rating.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY

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.
Claim A request for payment of a loss, which may come under the terms of an insurance 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.
Distribution Channel The method utilised by the insurance company to sell its products to policyholders.
Enterprise Risk Management ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.
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.
International Scale Rating (“ISR”) International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
Intermediary A third party in the sale and administration of insurance products.
Interest Money paid for the use of money.
Investment Portfolio A collection of investments held by an individual investor or financial institution.
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.
Market Risk Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.
Policyholder The person in actual possession of an insurance policy.
Portfolio All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
Short Term Current; ordinarily less than one year.
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.
Subordinated Debt Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.
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.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
   

For a more detailed glossary of terms please click here

GCR affirms GA Insurance Limited’s rating of A(KE); Outlook Positive.

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