Announcements

GCR affirms Pan Africa Life Assurance Limited’s rating of AA-(KE); Outlook Stable

Johannesburg, 14 July 2015 — Global Credit Ratings has today affirmed the national scale financial strength rating assigned to Pan Africa Life Assurance Limited of AA-(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 Pan Africa Life Assurance Limited (“Pan Africa”) based on the following key criteria:

Pan Africa reflects a very strong market share, underpinned by strong representation in both the individual and group life spaces. Going forward, competitive positioning is expected to continue to represent a rating strength, with premium generation through the bancassurance channel and new product offerings budgeted to supplement revenue streams. Increasing competitive dynamics within the life industry are, however, expected to represent a key challenge over the rating horizon, with note taken of successive negative premium growth over the last two years.

Capitalisation has been recorded at a moderately strong level, supported by robust growth in the capital base over the past three years. Risk based capital adequacy is viewed to be sufficient, with comparatively elevated capital risks stemming from exposure to market risk inherent in the nature of assets needed to support the group annuities and interest sensitive liabilities. Contained asset risk is budgeted to maintain risk adjusted capitalisation at a stable level in FY15, albeit capital generation is projected to be subdued in light of the projected softening in the operating result. The assurer’s capital management strategy is linked to statutory solvency targets, targeting statutory CAR coverage of 1.5x to 2x.

Liquidity has been measured at an intermediate level over the review period, with cash coverage of policyholder liabilities amounting to 0.5x in FY14 (FY13: 0.6x). Pan Africa exhibits a moderately strong matching of the nature and term of assets with the nature and term of the liabilities, facilitated by a well diversified investment portfolio.

The realignment of the investment portfolio towards interest bearing securities as well as the containment of the cost base have translated in the operating margin increasing since FY11. The operating margin has registered at an intermediate aggregated level over the past three years, with note taken of the consistently upward trend. The average returns on equity and embedded value have been recorded at robust levels, which is in part a function of the comparatively smaller capital base of the assurer relative to immediate peers. While the assurer’s scale efficiencies continue to represent a key competitive advantage, margin compression is expected over the short term, given continued adverse claims experience.

Pan Africa shows a moderate level of diversification as well as a moderate level of product risk, with the balance expected to be maintained over the medium term.

The quality of Pan Africa’s reinsurance counterparties is considered sound (reflecting domestic claims paying ability ratings of above A-(KE)), while maximum net deductibles are viewed to be conservative relative to both capital and net premiums.

Pan Africa’s rating currently matches GCR’s financial strength rating ceiling applicable for the Kenyan life assurance industry. In light of this, a further upgrade of the rating is deemed unlikely over the short to medium term. Over the short term, downward rating pressure may emanate from a material weakening of the operating result and continued loss of relative market share. Over the medium term, deterioration of key credit protection metrics may also result in downward rating pressure.

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (November 2009)    
Financial strength: A+(KE)    
Outlook: Stable    
     
Last rating (June 2014)    
Financial strength: AA-(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

Pan Africa reports 2009-2014

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 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.

Pan Africa Life Assurance 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 Pan Africa Life Assurance Limited with no contestation of the rating.

The information received from Pan Africa Life Assurance 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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