Announcements

GCR affirms Lion Assurance Company Limited’s rating of A- (UG); Positive Outlook.

Johannesburg, 11 July 2016 — 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 “Positive”. The rating is valid until June 2017.

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:

The positive outlook reflects Lion Uganda’s sustained strengthening in earnings capacity, with continued healthy earnings likely to result in upward rating movement over the rating horizon. In this respect, the insurer recorded strong technical results over the last three years, cumulatively amounting to UGX22.6bn. Profitability has been supported largely by a competitive loss ratio (3-year average: 33%). As such, the underwriting margin equated to a competitive 10% in FY15 (FY14: 14%), and is budgeted to equate to 14% in FY16.

Lion Uganda’s capitalisation is viewed to be strong, underpinned by healthy internal capital generation. As such, risk adjusted capital adequacy remained at strong levels throughout the review period. The international solvency margin equated to a high 86% at FYE15 (FYE14: 94%), and is expected to range between 80% and 90% over the rating horizon.

The insurer’s cash generative capacity remained high, underpinned by sound operating cash flows. As such, liquidity metrics remained at strong levels, with claims cash cover equating to 35 months, and cash covering net technical liabilities by 1.7x at FYE15. Going forward, liquidity metrics are expected to be sustained within a strong range, underpinned by the insurer’s conservative investment approach (with liquid assets accounting for 72% of the investment portfolio).

Lion Uganda reflects an intermediate competitive position, given a somewhat diversified product mix and a contained market share of 8% of total industry gross premiums in FY15. Going forward, the insurer is expected to retain existing competitive positioning, with growth expected to be derived from strategic plans to broaden distribution channels.

Material reinsurance counterparties evidence an intermediate aggregate level of counterparty strength, while the net deductible per risk and event is viewed to be set at a conservative level.

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. Conversely, negative rating actions could follow a significant decrease in Lion Uganda’s risk-adjusted capitalisation 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)    
Outlook: Stable    
     
Last rating: June 2015    
Claims paying ability: A-(UG)    
Outlook: Stable    

ANALYTICAL CONTACTS

Primary Analyst   Secondary Analyst
Marc Chadwick   Zwivhuya Mukosi
Sector Head: Insurance Ratings   Junior Analyst
(011) 784-1771   (011) 784-1771
chadwick@globalratings.net   zwivhuyam@globalratings.net
     
Committee Chairperson    
Susan Hawthorne    
Senior Credit Analyst    
(011) 784-1771    
susanh@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2015

Lion Assurance Company Limited rating reports, 2014-2015

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 Insurance Company Limited and other reliable third parties to accord the credit rating included:

  • The audited annual financial statements to 31 December 2015
  • 4 years of comparative audited numbers
  • Unaudited interim results as at 31 March 2016
  • Budgeted financial statements for 2016
  • 2016 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 please click here

GCR affirms Lion Assurance Company Limited’s rating of A-(UG); Positive Outlook.

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