Johannesburg, 30 Sep 2016– 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 is valid until July 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Phoenix of Uganda Assurance Company Limited (“Phoenix Uganda”) based on the following key criteria:
Phoenix Uganda reflects strong capitalisation. This has been underpinned by strong internal capital generation over the review period. Accordingly, the international solvency margin amounted to a high 123% at FYE15 (FYE14: 96%). Furthermore, risk adjusted capitalisation is also very strong, underpinned by low market risk exposure and well contained underwriting risk. GCR expects capitalisation to remain within a strong range over the rating horizon.
Liquidity metrics are strong, as evidenced by very high claims cash cover of 36 months and strong net technical provision coverage of 1.7x at FYE15 ( FYE14: 31 months and 1.3x). Healthy operational cash flow generation and conservative asset allocation has facilitated this key rating strength. GCR expects the company’s liquidity metrics to continue to measure within a strong range. Furthermore, asset quality is viewed to be high, with 96% of the investment portfolio being held in cash and equivalents.
Earnings capacity is viewed to be intermediate, having moderated from historically strong levels. The insurer’s operating margin deteriorated substantially in FY15 (-4%), comparing unfavourably to the 21% averaged over the prior four years. This stemmed from a 16 percentage point rise in the expense ratio to 60% (a function of the loss of scale and currency depreciation), as well as a higher claims ratio of 56% (prior four year average: 43%). Elevated expenses are expected to continue to suppress earnings capacity over the rating horizon, should sufficient scale not be achieved. As such, the insurer’s ability to grow whilst harnessing material cost efficiencies is likely to be a key rating consideration.
Phoenix Uganda reflects a comparatively limited business profile. Market positioning is constrained (3.1% of the market share), given the insurer’s lack of scale and growth. Further, earnings diversification by line of business is viewed to be limited, with two classes representing 92% of net premium revenue. This notwithstanding, the insurer’s established local franchise may provide a platform to reach long term growth targets.
Material reinsurance counterparties evidence a moderately strong aggregate level of counterparty strength.
Positive rating actions may result from a sustained improvement in underwriting results, while maintaining strong risk adjusted capitalisation. Conversely, negative rating pressure could occur if Phoenix Uganda displays a material weakening in capitalisation, a further reduction in earnings capacity and/or deterioration in liquidity metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (April 2012)|
|Claims paying ability: A(UG)|
|Last rating (July 2015)|
|Claims paying ability: A(UG)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Munyaradzi Mushure|
|Sector Head: Insurance Ratings||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Phoenix Uganda rating reports, 2012-2015
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 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 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 included:
- The audited annual financial statements to 31 December 2015
- Four years of comparative numbers
- Unaudited interim results to 30 June 2016
- Budgeted financial statements for 2016
- 2016 reinsurance cover notes
- Other related documents.
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capitalisation||The provision of capital for a company, or the conversion of income or assets into capital.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its risks.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|International Scale Rating (“ISR”)||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liquidity||The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|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.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short Term||Current; ordinarily less than one year.|
|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.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a detailed glossary of terms please click here
GCR affirms Phoenix of Uganda Assurance Company Limited’s rating of A(UG); Outlook Stable.