Johannesburg, 30 June 2021 – GCR Ratings (“GCR”) has affirmed ICEA LION Life Assurance Company Limited’s (“ICEA LION Life”) national scale financial strength rating of AA(KE); Outlook Stable.
|Rated entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|ICEA LION Life Assurance Company Limited||Financial strength||National||AA(KE)||Stable Outlook|
The rating balances the strengths and weaknesses of the consolidated sub-group, incorporating ICEA LION Life and its six wholly owned subsidiaries. ICEA LION Life is the core operating entity within this structure, contributing 75% and 93% to the subgroup’s total gross written premiums and total assets, respectively. The rating is supported by a very strong financial profile, coupled with moderately sound levels of competitiveness in markets of presence.
Risk adjusted capitalisation is assessed at very strong levels, underpinned by the maintenance of a large capital base, sufficient to absorb aggregate risk exposures. In this respect, the subgroup’s capital base advanced 12% to KES15.3bn at FY20, driven by healthy earnings generation and retention. This, together with moderate exposure to underwriting and market risk, sustained the assessment of risk adjusted capitalisation within a very strong range. Resultantly, the GCR capital adequacy ratio (“CAR”) measured at a very strong level, while the statutory CAR for the core operating entity within the group equated to 318% (FY19: 321%). Risk adjusted capitalisation is projected to measure within a very strong range over the rating horizon, underpinned by prospects of continued retainment of capital buffers, which could be sufficient to withstand unexpected shocks that may arise from current uncertainty in the operating environment.
The subgroup’s through-the-cycle earnings remained solid despite exhibiting pronounced inter-year volatility attributable to a combination of drivers. These include once-off annuity business growth (and the associated surge in reserves), changes in regulatory risk margins, investment income swings and more recently, an increase in claims experience. Over the review period, aggregate income generated exceeded total outgo by KES5.4bn, supporting healthy operating profitability. Tracking the five-year average metrics, the group’s operating margin equated to 12% in FY20 (FY19: 27%; FY18: -15%), while the return on revenue closed the year at 38% (FY19: 64%; FY18: -3.3%), with the latter benefiting from rather strong earnings contribution from the pension business. Going forward, volatility is likely to persist, although the earnings assessment may remain within healthy ranges, with the five-year moving average operating margin likely to be sustained above 10%, while the corresponding return on revenue may continue to measure above the 30% mark.
Liquidity measured within an intermediate range, supported by a conservatively invested asset portfolio. In this respect, the liquidity ratio consistently trended above 1x over the review period, while operational cash coverage persistently exceeded 12 months. Furthermore, the group’s asset-liability matching is considered to be fairly grounded, with maturities on assets and policyholders’ obligations largely matched, given domestic bond market constraints.
The subgroup evidences a healthy business profile, characterised by moderately strong competitive position and an intermediate level of premium diversification. Following review year premium growth driven by the annuity business, the subgroup’s GWP weighted market share strengthened to 8.1% (FY19: 7.7%), while weighted relative market share remained moderately unchanged at 1.8x (FY19: 1.9x). Although the product mix remained skewed in favour of individual life risks, constituting 57% of GWP (FY19: 67%), the underlying accounts are considered to be highly granular. Other significant contributors to the gross premiums base include group business (11%) and annuities (20.2% vs. 9.4% in FY19), while premium diversity is furthered by the subgroup’s exposure to short term business lines, collectively accounting for 12% of GWP in FY20. Premium spread across jurisdictions is positively viewed, with 25% of GWP derived from Uganda in FY20.
The Stable Outlook considers the pending consolidation of ICEA LION Life and its select subsidiaries at the recently established intermediate holdings company (“ICEA LION Insurance Holding Limited” or “the group”) level, which will also incorporate the accounts of ICEA LION General Insurance Company Limited and its subsidiary. In this respect, the impending consolidation is expected to have a neutral impact on ICEA LION Life’s credit profile, unless there is a positive reassessment of the subgroup’s importance to ICEA LION Insurance Holding Limited. Further underpinning the Stable Outlook are prospects of persistent financial profile strength, albeit factoring in potential earnings volatility. In this respect, the subgroup’s risk adjusted capitalisation is projected to remain very strong, with the liquidity ratio likely to continue measuring above 1x over the next 12 months. Earnings are susceptible to the adverse impact of the ongoing COVID-19 pandemic and associated risks. No material changes are expected in the group’s competitiveness and level of revenue diversification.
Upward rating movement may follow a positive reassessment of the subgroup’s importance to ICEA LION Insurance Holdings Limited. The rating could also improve on the back of a strengthening in earnings and liquidity, provided the credit profile of the group remains significantly stronger. Conversely, a negative assessment of the group’s credit profile and/ or a weakening in earnings may lead to downward rating pressure.
|Primary analyst||Tichaona Nyakudya||Senior Analyst: Insurance Ratings|
|Johannesburg, ZA||TichaonaN@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 2021|
|GCR Insurance Sector Risk Scores, April 2021|
ICEA LION Life Assurance Company Limited
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Claims paying ability||Initial||National||AA(KE)||Stable Outlook||October 2000|
|Financial strength||Last||National||AA(KE)||Stable Outlook||July 2020|
Risk score summary
|Rating components and factors||Risk score|
|Country risk score||3.75|
|Sector risk score||4.00|
|Management and governance||0.00|
|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.|
|Recovery||The action or process of regaining possession or control of something lost. To recoup losses.|
|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.|
|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.|
|Spread||The interest rate that is paid in addition to the reference rate for debt securities.|
|Statutory||Required by or having to do with law or statute.|
|Valuation||An assessment of the property value, with the value being compared to similar properties in the area.|
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:
- Audited financial results as at 31 December 2020;
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements for 2021;
- Unaudited interim results to 31 May 2021;
- Financial Condition Report for 2020;
- Actuarial Valuation Report for 2020;
- Other relevant documents.