Announcements

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

Johannesburg, 29 July 2014 — Global Credit Ratings (“GCR”) has today affirmed the national scale financial strength rating assigned to Pan Africa Life Assurance
Limited (“Pan Africa”) of AA-(KE); with the outlook accorded as Stable. The rating(s) are vaild until 06/2015.

SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) on Pan Africa Life Assurance Limited based on the following key criteria:

Pan Africa was founded in 1946 and is the primary operating subsidiary of Pan Africa Insurance Holdings Limited (“PAIHL”). In 2001, African Life acquired a 50% stake in PAIHL, which in turn was acquired by the Sanlam Group. The remaining 50% is listed in free float on the Nairobi Stock Exchange.

The rating is underpinned by Pan Africa’s position as the market leader in the Kenyan life assurance arena (26% market share as per 2012 GWP), with an equally entrenched representation in the individual and group life space underpinning its standing in a highly competitive environment. The corporate profile is further enhanced by its direct affiliation with the Sanlam Group, which provides technical support on an on-going basis. This includes the leveraging of the shareholder’s enterprise risk management framework, which fosters robust capital management disciplines and thus underpins financial stability.

The assurer’s ability to generate persistent robust operating surpluses over the review period is also favourably considered, which is underpinned by relative stability in the claims experience (below the prevailing industry norm) and a well contained delivery cost structure. Nonetheless, some degree of earnings volatility persists in light of sizeable unrealised investment movements. In addition, the size of the investment portfolio and well balanced asset mix therein is supportive of adequate asset-liability matching, with the high representation of low risk government securities, commercial paper and cash serving to mitigate investment risk and allowing for relative stability in investment earnings.
CAR coverage reduced notably in F13 to 1.53x (F12: 1.75x), which is viewed by GCR as a relative rating weakness in consideration of the strong coverage levels displayed historically. Over the medium term, the assurer is pursuing a revised minimum internal CAR coverage benchmark of 1.5x, a level which is considered to be the prudent minimum commensurate with the current rating band.

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. Downward rating pressure could develop from a sustained weakening of the operating result, and/or a further decline in CAR coverage. With regards to the latter, coverage is expected not to fall below a targeted level of 1.5x in order to maintain the current rating.

For a detailed glossary of terms utilised in this announcement please click here.

NATIONAL SCALE RATINGS HISTORY
Initial rating (Nov/2009)
Financial strength: A+(KE)
Outlook: Stable

Last rating (June/2013)
Financial strength: AA-(KE)
Outlook: Stable

ANALYTICAL CONTACTS
Primary Analyst
Benjamin Schmidt
Senior Credit Analyst
+27 11 784 1771 schmidt@globalratings.net

Committee Chairperson
Marc Chadwick
Sector Head: Insurance
+27 11 784 1771 chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Life Assurance Companies (July 2013)
Pan Africa Life Assurance Limited rating reports 2009-2013.

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/RATING-SCALES-DEFINITIONS . 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

.

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 and other reliable third parties to accord the credit rating included the audited annual financial statements for F13 (plus four years of comparative numbers), latest internal and/or external report to management, full year F14 detailed budgeted financial statements, reinsurance cover notes for 2014, the actuarial valuation report for 2013 and most recent year-to-date management accounts to 31 March 2014. In addition, information specific to the rated entity and/or industry was also received.

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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