Johannesburg, 6 July 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Lion Assurance Company Limited of A-(UG); 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 Lion Assurance Company Limited (“Lion Uganda”) based on the following key criteria:
Lion Uganda’s capitalisation is viewed to be strong, with capital growth supported by very high levels of retained profits over recent periods. GCR expects that risk-based capital adequacy will remain at a strong level over the rating horizon, even against the insurer’s plans for increased investment leverage and expansion goals, factoring this range for solvency volatility into the rating.
Liquidity metrics have remained strong since FY13, following the disposal of certain related-party strategic assets. Going forward, the insurer’s liquidity position is expected to be sustained at robust levels, despite the planned increase in asset allocation into higher risk securities. Overall, the insurer’s investment risk position reflects an intermediate level.
Lion Uganda continues to reflect a moderately strong competitive position, with increased uptake in select products enhancing premium growth. Going forward, continued efforts to broaden distribution channels and secure business from strategic partners is expected to contribute to ongoing revenue development and thus further cement the company’s competitive positioning.
Earnings capacity has strengthened over the last three years, supported by an improved and stable net loss experience. The maintenance of strict underwriting and pricing disciplines, together with efforts to attain scale efficiencies, is viewed by GCR as key strategic objectives to sustain strong reported net earnings.
Material reinsurance counterparties evidence an intermediate aggregate level of counterparty strength. The net deductibles per risk and event are viewed by GCR to be conservative.
Risk premiums are viewed to be relatively concentrated, with two lines of business accounting for over 70% of the risk base. However, this is partly offset by the low level of product risk carried by the motor account, with respective loss experiences maintained at favourable levels over recent periods.
Upward movement of the rating or outlook could develop should the insurer continue to register strong underwriting performance, whilst maintaining solvency and liquidity metrics at strong levels. A reduction in exposure to market risk would also contribute positively to balance sheet strength. Conversely, negative rating actions could follow a significant decrease in Lion Uganda’s risk-adjusted capitalisation as a result of an aggressive loading of additional risky investments beyond expected levels and/or a material deterioration in operating results. Moreover, reductions in liquidity, sustained over the medium term, could also have a negative bearing on the rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (June 2014)|
|Claims paying ability: A-(UG)|
|Last rating (June 2014)|
|Claims paying ability: A-(UG)|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014
Lion Assurance Company Limited rating report, 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.
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.
Lion 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 has been disclosed to Lion Assurance Company Limited with no contestation of the rating.
The information received from Lion Assurance Company Limited and other reliable third parties to accord the credit rating included:
- The 2014 audited annual financial statements
- 4 years of comparative audited numbers
- Unaudited interim results as per 30 April 2015
- Budgeted financial statements for 2015
- 2015 reinsurance cover notes
- Other related documents.
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
|Assets||The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’|
|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.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|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.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|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 Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|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.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|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.|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|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.|
|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.|
|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.|
For a detailed glossary of terms utilised in this announcement please click here