Johannesburg, 25 Jul 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Phoenix of Uganda Assurance Company Limited of A(UG); with the outlook accorded as Stable. The rating(s) are valid until 06/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Phoenix of Uganda Assurance Company Limited (“Phoenix Uganda”) based on the following key criteria:
Phoenix Uganda’s position as a strong second-tier player in the market lends support to the rating, with good revenue distribution allowing for a compound annual premium growth rate of 13% over the review period. The insurer has also sustained strong and consistent levels of underwriting profitability throughout the review period, supported by contained loss ratios. Nonetheless active focus to improve cost efficiencies is deemed imperative to enhance profitability in line with peer averages. Phoenix Uganda’s consistent internal capital generation has supported a steady increase in net surplus assets, which in turn has underpinned an upward trend in the international solvency margin to 92% in F13 (F09: 60%). Based on the company’s business plan, the rating assumes solvency will be maintained at sound levels over the short to medium term. A level of capital risk is, however, evident, given the relative large exposure long outstanding debtors. GCR views Phoenix Uganda’s sound liquidity metrics as a further rating strength and expects these measures to remain at strong levels over the medium term. A drawback, however, remains the high concentration of cash reserves to an unrated bank (largest: 48% in F13).
Earning diversification by line of business, however, remains limited, with two classes representing a material component of net premiums. Moreover, the exposure of earnings to exchange rate fluctuations is deemed a risk, amidst hard currency denominated reinsurance agreements and select fixed cost components.
Upward rating developments could stem from a strengthening in the insurer’s business profile, including enhanced market share. This is premised on the basis of sustained underwriting profitability (aided by the realisation of cost efficiencies) in tandem with industry averages, whilst key solvency and liquidity metrics remain at strong levels. A sustained weakening of the insurer’s underwriting performance, thus hindering capital accumulation, and/or the adoption of an overly aggressive risk appetite culminating in a notable softening of key solvency metrics could, however, bear negative rating implications.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (Apr/2012)
Claims paying ability: A(UG)
Last rating (Jun/2013)
Claims paying ability: A(UG)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013)
Phoenix of Uganda Assurance Company Limited (“Phoenix Uganda”) rating reports, 2012-2013
RATING LIMITATIONS AND DISCLAIMERS
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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 Uganda 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 Uganda Assurance Company Limited with no contestation of the rating.
The information received from Phoenix of Uganda Assurance Company Limited and other reliable third parties to accord the credit rating(s) included the latest available audited annual financial statements for 2013 (plus four years of comparative numbers), full year detailed budgeted financial statements for 2014, year to date management accounts to May 2014, the 2014 reinsurance cover notes and other non-public statistical information on the company and/or industry.
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 Uganda Assurance Company Limited rating of A(UG); Outlook Stable.