Johannesburg, 30 September 2016 — 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 2017.
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:
Phoenix Kenya’s rating derives significant upliftment from extremely strong capitalisation. Risk adjusted capitalisation measured at an extremely strong level, with the international solvency margin registering at 547% at FYE15. The insurer’s sizeable capital base (FYE15: KES1.6bn) is expected to sustain strong capital metrics over the short term, and as such material rating upliftment is expected to persist over the rating horizon. Over the medium term, however, GCR notes the potential for limited capital generation, high targeted premium growth, and continued dividend distributions, to result in a lowering in risk adjusted capital strength from existing levels.
The rating also derives upliftment from the extremely strong level of liquidity, underpinned by the high quantum of cash and equivalents (after the asset reduction exercise) relative to liabilities and claims. In this regard, cash coverage of technical liabilities and claims registered at 3.4x and 71 months respectively at FYE15 (FYE14: 4.7x and 78 months respectively). Liquidity is expected to be maintained at extremely strong levels over the rating horizon, although a lowering may transpire over the medium term, following impeded earnings and dividend outflows.
The lack of premium scale is viewed to limit Phoenix Kenya’s earnings profile, impeding earnings capacity. In this regard, the insurer has registered deep underwriting losses over the past three years (FY15: -26%, FY14: -86%, FY13: -26%), stemming in large from the lack of scale efficiencies. Over the short term, the insurer may continue to experience underwriting strain, with comparatively higher claims ratios (given the targeting of motor business), coupled with continued cost strain, limiting earnings potential.
Competitive positioning is viewed to be limited, stemming from a lack of premium traction in targeted markets. The insurer registered a relatively unchanged market share of 0.5% in FY15. Given the insurer’s constrained premium base, and weak track record in attaining growth targets, competitive positioning is likely to remain low over the rating horizon. The reinsurance counterparties display sound credit strength, whilst deductibles are viewed to be set at conservative levels relative to FYE15 capital.
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 (September 2015)|
|Claims paying ability: A+(KE)|
|Primary Analyst||Committee Chairperson|
|Rodwell Chevure||Yvonne Masiku|
|Credit Analyst||Senior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Phoenix Kenya rating reports, 2010- 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.
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 2015
- 4 years of comparative numbers
- Unaudited year to date results to 31 May 2016
- Budgeted financial statements for 2016
- Financial Condition Report 2015
- 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 please click here
GCR affirms Phoenix of East Africa Assurance Company Limited’s rating of A+(KE); Outlook Stable