Johannesburg, 16 September 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Phoenix of East Africa Assurance Company Limited of A+(KE); with the outlook accorded as Stable. The rating is valid until August 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Phoenix of East Africa Assurance Company Limited (“Phoenix Kenya “) based on the following key criteria:
Capitalisation is viewed to be very strong on both a nominal and risk-adjusted basis, and lends significant support to Phoenix Kenya’s credit strength. Risk-adjusted capital adequacy is expected to be sustained at strong levels over the rating horizon.
Historically, Phoenix Kenya’s investment approach was very aggressive. Recently, the insurer’s asset quality has improved notably, owing to the marked reduction in high risk financial assets by FYE14. In this regard, the bulk of the listed equity portfolio was liquidated in FY14, which saw high risk assets represent a much lower 31% of capital (FYE13: 81%).
Accordingly, this saw a strengthening in Phoenix Kenya’s liquidity profile, following the inflow of proceeds in accordance with the de-risking of the balance sheet. According to management, asset allocations will continue to be geared toward liquid investments for the short to medium term (particularly given the higher prevailing interest rate environment).
The insurer has displayed a very weak level of aggregate underwriting profitability over the review period, with earnings capacity notably underpinned by investment inflows. Capital build emanating from the core insurance portfolio would serve to enhance GCR’s view of Phoenix Kenya’s earnings capacity going forward.
Phoenix Kenya’s limited market profile serves as a constraint to the rating. Although the insurer has a limited track record of competitive growth, recent re-engagement with brokers is expected to facilitate increased market penetration and thus the earnings profile. The successful attainment of these objectives represents a key short term rating consideration.
In view of Phoenix Kenya’s continued restrained relative market position and profit volatility, a rating upgrade is considered unlikely over the short to medium term. Over the long term, an upward revision of the rating could develop on the back of increased market entrenchment, enhanced earnings capacity and maintenance of strong liquidity metrics. Downward rating pressure could arise from a protracted decline in risk-adjusted capitalisation and/or an increase in balance sheet risk amidst a return to a more risky investment stance.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (August 2010)|
|Claims paying ability: A+(KE)|
|Last rating (July 2014)|
|Claims paying ability: A+(KE)|
|Senior Credit Analyst|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Phoenix Kenya rating reports (2010- 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.
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.
Phoenix of East Africa Assurance Company 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 Phoenix of East Africa Assurance Company Limited with no contestation of the rating.
The information received from Phoenix of East Africa Assurance Company Limited and other reliable third parties to accord the credit rating(s) included;
- Audited financial results as at 31 December 2014
- 4 years of comparative numbers
- Unaudited year to date results to June 2015
- Budgeted financial statements for 2015
- Financial Condition Report 2014
- The current year reinsurance cover notes
- Other non-public statistical information
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Assets||The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’|
|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.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|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.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|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 Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|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.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|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. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|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.|
|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.|
|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.|
For a detailed glossary of terms utilised please click here