Announcements

GCR affirms Phoenix of East Africa Assurance Company Limited’s rating of A+(KE); outlook Stable

Johannesburg, 29 July 2014 — Global Credit Ratings (“GCR”) has today affirmed the national scale claims paying ability rating assigned to Phoenix of East Africa Assurance Company Limited (“Phoenix”) of A+(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 Phoenix of East Africa Assurance Company Limited based on the following key criteria:

Phoenix was established in 1912, and has since expanded into the East African region, through its subsidiaries in Uganda (69%), Tanzania (51%) and Rwanda (55%). At FYE13, Phoenix was a 66% owned subsidiary of Phoenix Transafrica Holdings Limited, which is privately owned and domiciled in Kenya. Note is taken of the recent conclusion of a corporate transaction in May 2014, which saw a buy-out of Phoenix Transafrica Holdings Limited by Mauritius Union Assurance Cy Limited. Considering the calibre of this entity (being a leading player in the Mauritius insurance arena), this transaction is favourably viewed as it serves to notably enhance the insurer’s corporate profile (albeit the materialisation of these benefits remains subject to the operationalization of strategic objectives and the bedding down of group structures).

The rating is significantly underpinned by the insurer’s robust capitalisation relative to premium levels, with the international solvency margin trending at a persistently strong (well above industry average) level over the review period. Statutory solvency coverage remains equally sound, at 28x at FYE13. This notwithstanding, note is taken of the fact that capital is to a large extent backed by listed equities, which are inherently exposed to market volatility. Coupled with heightened counter concentration, this implies increased capital risk. Cognisance is, however, taken of successful efforts undertaken by management in de-risking the balance sheet, via the paying down of interest bearing borrowings and the liquidation of select listed equities. Attesting to the success thereof, key liquidity metrics have strengthened notably in F13 and are forecast to be maintained at prudent levels.

The insurer continues to display a weak underwriting trajectory, with consecutive underwriting deficits registered over the review period. Amidst relative claims stability, this stems from an unsustainability high cost ratio (with expense absorption notably curtailed by the lack of critical mass). Consequently, the insurer remains reliant on investment income to support earnings. Further, ongoing premium erosion has seen the insurer’s market position weaken over the review period, with the chronic lack of premium scale viewed to be a constraint to pricing power. Risk to revenue remains elevated in light of a persistent high reliance on motor (at 47% of NWP in F13), which continues to drive losses at the underwriting line. Positively, net retentions per risk and event are contained at low levels relative to capital, whilst most reinsurance counterparties are generally of a sound credit quality.

In view of Phoenix’s continued restrained relative market position, 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, and a concurrent maintenance of key credit protection metrics at levels similar to historic norms. Conversely, downward rating pressure could arise from a protracted sharp decline in key solvency metrics and/or an increase in balance sheet risk amidst a return to a more risky investment stance.

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

NATIONAL SCALE RATINGS HISTORY

Initial rating (Aug/2010)
Claims paying ability: A+(KE)
Outlook: Stable

Last rating (Jun/2013)
Claims paying ability: A+(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 Insurance Companies (July 2013).
Phoenix of East Africa Assurance Company Limited rating reports 2010-2013.

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.

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/s 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 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 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.

GCR affirms Phoenix of East Africa Assurance Company Limited’s rating of A+(KE); outlook Stable

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