Johannesburg, 30 September 2016—Global Credit Ratings has today affirmed the national scale financial strength rating assigned to ICEA LION Life Assurance Company Limited of AA-(KE); with the outlook accorded as Stable. The rating is valid until September 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to ICEA LION Life Assurance Company Limited (“ICEA LION Life”) based on the following key criteria:
Very strong capitalisation represents a key rating strength, which is expected to continue over the rating horizon. High capital accumulation has supported the large capital base, which amounted to KES7bn at FYE15 (FYE14: KES6.7bn). In conjunction with a comparatively low quantum of underwriting risk (impacted by the high weighting of individual life products), this has sustained very strong risk adjusted capitalisation, with statutory coverage measuring at 3.7x at FYE15.
Liquidity has measured at a strong level, which is expected to be sustained going forward. Liquidity strength is underpinned by the large asset base relative to liabilities, with total investment coverage of policyholder liabilities registering at a relatively unchanged 1.2x at FYE15. Asset liability matching is viewed to be strong, given the matching of the maturity profiles.
Earnings capacity is viewed to be intermediate, supported by scale efficiencies, and material investment inflows (a function of the large asset base). In this regard, the insurer has displayed a favourable operating performance over the review period, albeit the recent increased total benefit payouts experience is expecting to somewhat constrain operating margin headroom over the rating horizon. Consequently, earnings capacity is expected to register within an intermediate range over the rating horizon.
The insurer displays a strong competitive position, and a fairly healthy earnings profile, both of which are expected to be sustained over the medium term. Elevated growth within the individual life space has been supported by an established brand and strong corporate relations. Accordingly, the insurer displayed an increased market share of 9% in FY15 (FY14: 7%). Individual and group life products are well spread across policyholders (albeit that the high product weighting limits the business mix). The earnings profile is supported by the low risk nature of the product offerings.
The reinsurance counterparties display a sound credit profile, with deductibles viewed by GCR to be set at conservative levels relative to FYE15 capital.
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. Downward pressure on the rating could develop from a protracted weakening in capital adequacy and/or a deterioration in liquidity.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (October 2000)|
|Financial strength: AA(KE)|
|Last rating (September 2015)|
|Financial strength: AA-(KE)|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Long Term Insurance companies, updated July 2016
ICEA LION Life rating reports, 2012-2015
Insurance Company of East Africa Limited (“ICEA”) rating reports (2000-2011)
RATING LIMITATIONS AND DISCLAIMERS
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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 Life Assurance 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/s has been disclosed to ICEA LION Life Assurance Company Limited with no contestation of the rating.
The information received from ICEA LION Life Assurance Company Limited and other reliable third parties to accord the credit rating(s) included;
- Audited financial results as at 31 December 2015
- 4 years of comparative numbers
- Unaudited year to date results to 30 June 2016
- Budgeted financial statements for 2016
- Financial Condition Report 2015
- The current year reinsurance cover notes
- Actuarial valuation 2015
- Other non-public statistical 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 ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY>
|Actuarial||Having to do with insurance mathematics.|
|Assets||The items on the balance sheet of the insurer which show the book value of property owned.|
|Assurance||Terminology used to describe life insurance.|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Bond||A certificate issued by a government or corporation as evidence of a debt.|
|Capacity||The largest amount of insurance or reinsurance available from a company.|
|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 to agents and brokers.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Insurance||A formal social device for reducing risk by transferring the risks of several individual entities to an insurer.|
|Insured||A person or organisation covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss||The happening of the event for which insurance pays.|
|Long term (“LT”)||Not current; ordinarily more than one year.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|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. Also, the total securities owned by an insurer.|
|Provision||A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.|
|Rate||The pricing factor upon which the insurance buyer’s premium is based.|
|Rating||The statistical process by which insurers determine risks and pricing for the basic classes of insurance.|
|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.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|Securities||Evidences of a debt or of ownership, such as stocks, bonds, and checks.|
|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.|
|Surplus||The excess of assets over liabilities.|
|Valuation||Estimation of the value of an item, usually by appraisal.|
For a detailed glossary of terms please click here
GCR affirms ICEA LION Life Assurance Company Limited’s rating of AA-(KE); Outlook Stable.