Announcements

GCR affirms Liberty Life Assurance Kenya Limited’s rating of A+(KE); Outlook Stable

Johannesburg, 3 July 2015 — Global Credit Ratings has today affirmed the national scale financial strength rating assigned to Liberty Life Assurance Kenya Limited of A+(KE) ; with the outlook accorded as Stable. The rating is valid until June 2016.

SUMMARY RATING RATIONALE

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

Liberty Life Kenya reflects a market share of 6.3%, and is the fifth largest player in the life industry with a strong presence in the unit linked business (“ULP”). Competitive positioning is expected to be cemented over the short term following increased operational and branding alignment with Liberty Holdings Limited (“the Group”). Over the medium term, the assurer expects Group capabilities to provide enhanced distribution and product management competencies, while franchise value is expected to contribute positively to market confidence.

Liberty Life Kenya adopted asset liability matching systems from the Group, which saw the realignment of the investment portfolio to suit the term and nature of the liabilities in FY14. As such, Liberty Life Kenya exhibits strong asset liability matching, which is expected to be maintained over the medium term. Similarly, liquidity has been assessed at strong levels, underpinned by the large quantum of the investment asset base, coupled with high weightings of cash and equivalents, and marketable securities.

Capital adequacy has measured at strong levels over the review period, underpinned by sound growth in the capital base, coupled with containment of underwriting risk exposure. Liberty Life Kenya has adopted risk-based capital modelling, economic capital modelling and scenario testing models from the Group, which stand to maintain capital adequacy at high levels going forward.

Profitability has stabilised over the past two years to an intermediate level, supported by increased consistency in individual life benefit patterns and a profitable deposit administration book. Over the medium term growth strategy, the implementation of systems and processes derived from the Group are expected to facilitate enhanced stability in the underwriting and benefits experience. As such, the attainment of meaningful scale efficiencies as a core profit driver is likely to represent a key medium term objective.

The assurer’s earnings spread, while evidencing limited diversification, benefits from the high weighting towards intermediate risk product offerings. The establishment of new distribution channels to boost group life business will see increased diversification over the medium term. The quality of the assurer’s reinsurance counterparties is considered sound, with most of the above listed entities reflecting domestic claims paying ability ratings in the “A” band or above.

Positive rating action could develop from an increased level of market penetration (particularly within the group life space), whilst maintaining key credit protection metrics at current levels could give rise to an upward rating adjustment over the medium term. Negative rating action could result from a sustained weakening in the assurer’s financial profile, with key credit protection metrics softening markedly against historic norms. Exemplary of this, a protracted deterioration in CAR coverage well below the current comfort level could give rise to downward rating pressure.

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (May 2013)    
Financial strength: A+(KE)    
Outlook: Stable    
     
Last rating (June 2014)    
Financial strength: A+(KE)    
Outlook: Stable    
     

ANALYTICAL CONTACTS

Primary Analyst   Committee Chairperson
Marc Chadwick   Sheri Few
Sector Head: Insurance Ratings   Senior Analyst
(011) 784-1771   (011) 784-1771
chadwick@globalratings.net   few@globalratings.net
     
Secondary Analyst    
Rodwell Chevure    
Junior Analyst    
(011) 784-1771    
rodwellc@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Life Assurance Companies, updated July 2014

Liberty Life Kenya, previously known as CfC Life Assurance Limited (“CfC Life”), rating reports (2013-2014).

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.

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 utilised in this announcement please click here

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.

Liberty Life Assurance Kenya 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 Liberty Life Assurance Kenya Limited with no contestation of the rating.

The information received from Liberty Life Assurance Kenya Limited and other reliable third parties to accord the credit rating(s) included;

  • Audited financial results of Company as at 31 Dec 2014
  • Four years prior audited financial statements
  • Unaudited interim results as per 31 Mar 2015
  • Budgeted financial statements for 2015
  • Actuarial valuation statement for 2014
  • Financial condition report 2014
  • The current year reinsurance cover notes
  • Other non-public statistical information

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

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