Johannesburg, 26 Aug 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to ICEA LION General Insurance Company Limited of AA-(KE), with the outlook accorded as Stable. The rating is valid until August 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to ICEA LION General Insurance Company Limited (“ICEA LION General”) based on the following key criteria:
The insurer reflects strong risk adjusted capitalisation, underpinned by a sizeable capital base catering for the quantum of insurance and asset risks. Accordingly, the international solvency margin amounted to a high 107% at FYE15 (FYE14: 112%). Sound internal capital generation and the maintenance of a conservative dividend policy are likely to continue to support risk adjusted capital adequacy within a strong range over the rating horizon.
Earnings capacity is viewed to be strong. In this respect, the insurer’s combined ratio has averaged 89% over the last four years. Strong underwriting profitability has been supported by active portfolio management and prudent underwriting disciplines, which have resulted in the insurer sustaining a competitive net incurred loss ratio (4-year average: 50%), compared to the industry (4-year average: 60%). GCR expects the insurer’s through the cycle earnings capacity to remain within a strong range, in light of the company’s solid track record.
ICEA LION General’s competitive position is viewed to be strong, underpinned by the company’s strong brand franchise and established market presence. In this respect, the insurer’s market share has remained around 5% of total short term industry premiums over the last three years. Going forward, management expects to continue to defend its market share, supported by strong broker relationships, new product development and enhanced penetration into non-motor retail space.
The insurer’s liquidity has measured at sound levels, as evidenced by the high claims cash cover and technical provision cover metrics of 23 months and 0.8x respectively at FYE15. GCR expects liquidity to be maintained at sound levels over the rating horizon.
ICEA LION General’s asset quality is viewed to be intermediate, given significant market risk exposures to listed equity (24% of capital) and investment property (74% of capital). These are, however, considered manageable in view of the insurer’s sizeable capital base. The panel of reinsurers reflect a strong level of aggregate credit strength, with the maximum net deductibles per risk and event limited to conservative levels relative to capital.
The insurer’s business mix is viewed to be fairly well spread, with three lines of business contributing more than 10% to gross premiums. Nevertheless, on a net risk basis, the portfolio is heavily reliant on motor (59%). Positively, the high earnings quality exhibited by ICEA LION General’s motor portfolio, along with the fairly limited level of product risk in the net account, contributes favourably to GCR’s view of the company’s overall earnings profile.
The rating currently matches the national scale ceiling applicable to entities operating within the Kenyan insurance industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. Conversely, downward rating movement may arise if a substantial or sustained weakening in capitalisation levels were to be evidenced. This could also be triggered by a significant loss in market share or a sustained reduction in operating performance.
| NATIONAL SCALE RATINGS HISTORY | ||
| Initial rating (October 2000) | ||
| Claims paying ability: A+(KE) | ||
| Outlook: Stable | ||
| Last rating (August 2015) | ||
| Claims paying ability: AA-(KE) | ||
| Outlook: Stable |
ANALYTICAL CONTACTS
| Primary Analyst | Secondary Analyst | |
| Yvonne Masiku | Munyaradzi Mushure | |
| Senior Credit Analyst | Junior Credit Analyst | |
| (011) 784-1771 | (011) 784-1771 | |
| ymasiku@globalratings.net | munyaradzim@globalratings.net | |
| Committee Chairperson | ||
| Marc Chadwick | ||
| Sector Head: Insurance Ratings | ||
| (011) 784-1771 | ||
| chadwick@globalratings.net |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
ICEA LION General rating reports, (2012-2015)
Lion of Kenya Insurance Company Limited and Insurance Company of East Africa Limited rating reports, (2000-2011)
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.
ICEA LION General Insurance 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 ICEA LION General Insurance Company Limited with no contestation of the rating.
The information received from ICEA LION General Insurance Company Limited and other reliable third parties to accord the credit rating included:
- The audited financial results as at 31 December 2015
- Unaudited interim results to 30 June 2016
- Budgeted financial statements for 2016
- Financial Condition Report 2015
- The current year reinsurance cover notes
- Actuarial valuation report for 2015
- 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. |
| National Scale Rating (“NSR”) | |
| 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 ICEA LION General Insurance Company Limited’s rating of AA-(KE); Outlook Stable.
