Johannesburg, 11 July 2016 — 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 2017.
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 strong competitive position, with a market share of 12% of total gross industry premiums (FY14: 14%). The insurer’s competitive position has been supported by strong brand recognition, with the insurer reflecting sound (albeit reducing) representation in group life segments, as well as solid representation in the individual life market. The reduction in market share largely stemmed from the loss of group life portfolios in the competitive space. In this respect, management expects to clawback market share, underpinned by expanding distribution channels and product development, which would serve to uphold competitive strength. In GCR’s view, the loss of market share may feed through to the insurer’s financial profile over the medium term.
Risk adjusted capitalisation measured at a moderately strong level, underpinned by sound retained income and containment of underwriting risks. Going forward, the pursuit of individual life business (which is inherently capital intensive) may result in a moderation of capital levels over the medium term.
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. In this respect, listed shares and interest securities represent a significant proportion of the investment portfolio (48%), given the increased focus on with-profits products and group annuities. Liquidity has been measured at a moderately strong level, with total investment coverage of policyholder liabilities and deposit administration liabilities remaining stable at 1.1x throughout the review period. Liquidity is expected to be maintained within a moderately strong range, underpinned by the preservation of the asset allocation strategy.
Earnings capacity has registered within an intermediate range over the review period, supported by favourable claims experience (reflective of a mature benefit profile), and investment income inflows. The aggregate operating margin registered at 5% in FY15, with a similar margin budgeted for FY16. Note is taken, however, of a reduction in the return on embedded value in FY15 to 4% (FY14: 16%), underpinned by a revision of assumptions and increased expenses. Management expects return on embedded value to rebound in FY16, and as such earnings capacity is expected to be maintained within an intermediate range over the rating horizon.
Pan Africa shows a moderate level of diversification, as well as an intermediate 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, while maximum net deductibles are viewed to be conservative relative to both capital and net premiums.
The rating currently matches the national scale financial strength rating ceiling applicable to entities operating within the Kenyan life insurance industry. In this regard, positive rating action may follow an assessment of country and industry risk factors. Over the short term, downward rating pressure may emanate from a weakening in the operating result and/or 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)|
|Last rating (June 2015)|
|Financial strength: AA-(KE)|
|Primary Analyst||Committee Chairperson|
|Rodwell Chevure||Marc Chadwick|
|Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Long Term Insurance Companies, updated July 2015
Pan Africa reports, 2009-2015
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.
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 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 included;
- Audited financial results of Company as at 31 Dec 2015
- Four years prior audited financial statements
- Unaudited interim results as per 31 Mar 2016
- Budgeted financial statements for 2016
- Actuarial valuation statement for 2015
- Financial condition report 2015
- 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.
GCR affirms Pan Africa Life Assurance Limited’s rating of AA-(KE); Outlook Stable.