Announcements Insurance Rating Alerts

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

Rating action

Nairobi, 31 May 2021 – GCR Ratings (“GCR”) has affirmed Mayfair Insurance Company Limited’s (“Mayfair”) national scale financial strength rating of A+(KE), with the outlook accorded as Stable.

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 a strong financial profile underpinned by strong risk adjusted capitalisation and sound earnings, offsetting its limited business profile.

Mayfair exhibits high levels of risk adjusted capitalisation. The entity sustained these levels of capital adequacy over the review period, driven by consistent internal capital generation and conservative dividend distributions. As such, the GCR Capital adequacy ratio (“GCR CAR”) registered at 2.4x (FY19: 2.3x) while the statutory CAR measured to 255% (FY19: 245%). Going forward, risk adjusted capitalisation is expected to remain above 2.3x, with expectations of the entity’s ability to absorb unfavourable risk deviations remaining at similar strengths.

Earnings are viewed to be strong, reflecting positive performance, above the industry average. In this respect, the issuer registered a five-year average net underwriting margin and return on revenue of 13.4% (FY19: 15.6%) and 22.9% (FY19: 25.1%) respectively, with slight moderations noted due to unfavourable claims experience. Similarly, FY20 displayed a moderation in underwriting performance to 9.1% (FY19: 11.7%), mainly driven by a prudent decision to increase claim reserves to reflect the changes in loss experience over the review period. Positively, the operating expense ratio moderated to 27.2% (FY19:30.1%). Earnings are further bolstered by healthy investment income mainly emanating from interest on government securities. Looking ahead, GCR expects earnings to be sustained at similar levels supported by investment income offsetting underwriting pressures at gross level.

Liquidity is viewed to be in the intermediate range and consistent over the review period, supported by sustained asset allocation. As such, cash and stressed assets coverage on technical liabilities remained at 1.4x, while operational cash coverage improved to 29 months (FY19: 23 months), supported by an increase in short term deposits. Liquidity metrics are expected to be sustained at similar levels, with further improvements contingent upon successful sale of property invested by the entity through joint arrangements.

The insurer business profile is considered intermediate, maintaining a relative market share of 0.9x over the past three years. Nevertheless, GCR notes premium growth sustained through strategic partners and cross boarder business from associate companies, offsetting loss of accounts in FY20 amid the COVID 19 pandemic. The insurer’s premium diversification is diversified across three lines of business contributing materially to gross premiums, concentrated mainly in the motor and fire/property book. The business profile is expected to be maintained at similar levels underpinned by entrenched relationships with market intermediaries.

Outlook statement

The Stable Outlook reflects expectations that the credit profile of Mayfair will be maintained, with a GCR CAR registering between 2.3x-2.6x in the medium-term and average net underwriting margin measuring above 11%. Cash and stressed assets coverage on technical liabilities is likely to be sustained at similar levels, while asset allocation remains the same. The relative market share is expected to be sustained at 0.9x while market share range between 2.4% – 3.0%. In this respect, no material changes to the business profile are expected over the outlook horizon.

Rating triggers

Positive rating action may follow on sustained improvements in liquidity or capitalization above expectations (registering a GCR CAR of above 2.7x) and a turnaround in underwriting performance at gross level, as the investment income improvements exhibited are sustained. Negative rating action may ensue if earnings or liquidity metrics reduce below expected levels.

Analytical contacts

Primary analyst David Mungai Analyst: Insurance Ratings
Nairobi, KE DavidM@GCRratings.com +254 73 218 8669
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@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, March 2021

GCR Insurance Sector Risk Scores, April 2021

Ratings history

Mayfair Insurance Company limited

Rating class Review Rating scale Rating Outlook/Watch Date
Claims paying ability

Financial strength

Initial National BBB+(KE) Positive June 2015
Last National A+(KE) Stable June 2020

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 2.75
Earnings 1.25
Capitalisation 1.75
Liquidity (0.25)
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 9.75

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.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
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 is based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating is 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 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 virtual 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 entities and other reliable third parties to accord the credit rating included:

  • Audited financial statements as at 31 December 2020;
  • Four years of comparative audited financial statements to 31 December;
  • Full year budgeted financial statements for 2021;
  • Unaudited interim results to 30 March 2021; and
  • Other relevant documents.

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