Announcements Insurance Rating Alerts

GCR affirms Mayfair Insurance Company Limited’s Kenyan financial strength rating of A+(KE); Outlook Stable

Rating action

Johannesburg, 09 June 2020 – GCR Ratings (“GCR”) affirms Mayfair Insurance Company Limited’s (“Mayfair”) national scale financial strength rating of A+(KE), Stable Outlook.

Rated Entity / Issue

Rating class

Rating scale

Rating

Outlook/Watch

Mayfair Insurance Company Limited

Financial strength

National

A+(KE)

Stable Outlook

Rating rationale

Mayfair’s national scale financial strength rating reflects the insurer’s strong financial position attributed to very strong risk adjusted capitalisation, sound liquidity and robust earnings, partially offset by a limited business profile.

Risk adjusted capitalisation is viewed to be very strong supported by solid internal capital generation and preservation, through conservative dividend distributions. As such, Mayfair has maintained a GCR capital adequacy ratio (“CAR”) above 2x over the review period, while the regulatory capital adequacy ratio registered at 245% at FY19 (FY18: 242%). Going forward, risk adjusted capitalisation is expected to be maintained at similar levels, supporting exhibited solvency buffers and a potential mild impact of COVID-19 risks to internal capital generation under the base case scenario.

Mayfair has maintained strong earnings supported by a relatively lower net incurred loss ratio and scale efficiencies. As such the five-year underwriting margin registered at 16% (FY19: 12%; FY18: 16%). Cognisance is taken of higher net incurred loss ratios over the past two years (55% and 51% in FY19 and FY18, respectively, vs a review period average of 48%), while some margin pressure was absorbed through operating expense ratio moderation to 30% (FY18: 33%). Earnings are further bolstered by sound investment income, providing significant uplift to bottom-line profitability, with the five-year average return on revenue equating to 25% (FY19: 21%; FY18: 26%). Given strong margin performance and portfolio remedial measures, earnings are expected to withstand short term pressures.

Liquidity is assessed at an intermediate level, with coverage of net technical liabilities maintained at 1.4x at FY19, while operational cash coverage registered at 23 months (FY18: 27 months), supported by positive cash flow generation. Liquidity metrics are expected to remain within similar levels going forward, albeit susceptible to potential cash flow strain due to system-wide liquidity stress. In this respect, the insurer’s ability to manage liquidity risks over the short term is a key rating consideration.

The rating is negatively impacted by the insurer’s limited business profile. In this regard, Mayfair has maintained an intermediate competitive position with the market share registering at around 2% over the review period. The business mix is viewed to be well diversified with four lines of business contributing materially to the gross premium base, partially offset by limited geographic diversification, given that all premiums are derived from the primary market (albeit noting a developing regional presence in Rwanda, Tanzania, Uganda and Zambia through associate investments). Competitive position is expected to be maintained within the same range, supported by entrenched market relationships with intermediaries and corporate clients which dominate the insurer’s book.

Outlook statement

The stable outlook reflects expectations of sustained stability in capital and earnings strength over the outlook horizon, while the business profile remains comparatively limited.

Rating triggers

An upward rating movement is not expected over the short term although an improvement in the business profile and sustained strengthening in earnings may be considered positively over the medium term. Conversely, the rating could be downgraded on the back of a material or sustained deterioration in liquidity and/or risk adjusted capitalisation below expected levels.

Analytical contacts

Primary analyst

Tichaona Nyakudya

Senior Analyst: Insurance

Johannesburg, ZA

TichaonaN@GCRratings.com

+27 11 784 1771

     

Secondary Analyst

Linda Matavire

Insurance Associate

Johannesburg, ZA

Lindam@GCRratings.com

+27 11 784 1770

     

Committee chair

Godfrey Chingono

Deputy Sector Head: Insurance

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, May 2020

GCR Insurance Sector Risk Scores, June 2020

Ratings history

Mayfair Insurance Company Limited

Rating class

Review

Rating scale

Rating class

Outlook

Date

Claims paying ability

Initial

National

BBB+(KE)

Positive Outlook

June 2015

Financial Strength

Last

National

A+(KE)

Stable Outlook

September 2019

Risk score summary

Rating Components and Factors

Risk score

 

 

Operating environment

8.25

Country risk score

4.00

Sector risk score

4.25

   

Business profile

(1.25)

Competitive position

(0.50)

Premium diversification

(0.75)

Management and governance

0.00

 

 

Financial profile

2.50

Earnings

1.25

Capitalisation

1.50

Liquidity

(0.25)

   

Comparative profile

0.00

Group support

0.00

Government support

0.00

Peer analysis

0.00

   

Total Score

9.50

Glossary

Premium

The price of insurance protection for a specified risk for a specified period of time.

Primary Market

The part of the capital markets that deals with the issuance of new securities.

Rating Outlook

See GCR Rating Scales, Symbols and Definitions.

Regulatory Capital

The total of primary, secondary and tertiary capital.

Risk

The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.

Senior

A security that has a higher repayment priority than junior securities.

Short Term

Current; ordinarily less than one year.

Technical Liabilities

The sum of Net UPR and Net OCR IBNR.

Underwriting Margin

Measures efficiency of underwriting and expense management processes.

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.

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 was based solely on the merits of rated entity, security or financial instrument being rated; and c.) such rating was 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 above 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 face-to-face 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 rated entity and other reliable third parties to accord the credit rating included:

  • Audited financial results as at 31 December 2019;
  • Four years of comparative audited financial statements to 31 December
  • Full year budgeted financial statements for 2020;
  • Unaudited interim results to 31 March 2020;
  • Reinsurance cover notes for 2020; and
  • Other relevant documents.

 

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