Johannesburg, 30 November 2017 — 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 2018.
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:
The rating affirmation was based on Phoenix Uganda’s strong risk adjusted capitalisation and liquidity metrics, which are expected to persist at similar levels over the rating horizon. Earnings capacity has come under pressure over the last two years, and is likely to remain suppressed over the outlook horizon. Accordingly, the extent to which this impacts on the insurer’s credit profile over the medium term is expected to be a rating consideration.
The insurer reflects strong risk adjusted capital adequacy, supported by a sizeable capital base catering for the quantum of insurance and market risk. Accordingly, the international solvency margin equated to a high 122% at FY16 (FY15: 123%). High internal capital generation, and fairly well contained dividend distributions, are likely to sustain strong levels of risk adjusted capitalisation over the rating horizon. Furthermore, the maximum exposure per risk and event was maintained at conservative levels relative to capital at FY16, while the reinsurance counterparties evidence an intermediate level of aggregate credit strength.
Key liquidity measures remained at very strong levels, underpinned by sound operating cash generation, and conservative asset allocation. In this regard, cash covered net technical liabilities by a strong 2.0x (FY15: 1.7x), while cash coverage of monthly claims equated to a high 71 months (FY15: 36 months). This trend is expected to persist over the rating horizon, supported by sound operating cash flow generation and management’s commitment to maintaining conservative asset allocation.
Phoenix Uganda’s earnings capacity historically measured at strong levels, with the operating margin averaging 15% over the review period and the five year aggregated underwriting margin equating to 4%. Over the last two years, the operating margin has averaged 6%, while the two year underwriting margin was -7%. While management expects earnings capacity to revert to very strong levels (supported by improved underwriting profitability), GCR notes the potential for continued earnings compression, due to limited scale efficiencies envisaged.
The insurer’s business profile is viewed to be intermediate, underpinned by relatively limited competitive positioning, partially offset by fairly well diversified earnings. In this regard, the insurer’s share of total short term industry gross premiums remained relatively limited at 3.5% in FY16. Nonetheless, the business mix is viewed to be fairly well spread, with four lines of business representing a combined 93% of the overall gross premium base. GCR expects the business profile to remain at a similar level over the outlook horizon.
Positive rating action may result from a sustained improvement in underwriting results, while maintaining strong risk adjusted capitalisation. Conversely, negative rating pressure could occur following sustained earnings pressure and/or deterioration in liquidity metrics, or if Phoenix Uganda displays a material weakening in capitalisation.
NATIONAL SCALE RATINGS HISTORY
|Initial rating (April 2012)|
|Claims paying ability: A(UG)|
|Last rating (September 2016)|
|Claims paying ability: A(UG)|
|Primary Analyst||Secondary Analyst|
|Yvonne Mujuru||Zwivhuya Mukosi|
|Sector Head: Insurance Ratings||Junior Credit Analyst|
|(011) 784 – 1771||(011) 784 – 1771|
|Senior Credit Analyst|
|(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2017
Phoenix Uganda rating reports, 2012-2016
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/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 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 2016 audited annual financial statements
- Four years of comparative audited numbers
- Unaudited interim results to 30 June 2017
- Budgeted financial statements for 2017
- 2017 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 more detailed glossary of terms, please click here
GCR affirms Phoenix of Uganda Assurance Company Limited’s rating of A(UG); Outlook Stable.