Announcements

GCR affirms Saham Assurance Company Kenya Limited’s rating of A-(KE); Outlook Stable

Johannesburg, 29 May 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Saham Assurance Company Kenya Limited of A-(KE); with the outlook accorded as Stable. The rating is valid until May 2016.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Saham Assurance Company Kenya Limited (“Saham Kenya”) based on the following key criteria:

Following a transaction in 2013, the company became a 67% owned subsidiary of Colina Holdings, an insurance group with a strong presence in the Francophone region, with a strategy of expanding into other African countries. The Saham Group is the ultimate majority shareholder. As such, in early 2014, the company changed its name from Mercantile Insurance Company Limited to Saham Assurance Company Kenya Limited in order to align with the new shareholder’s corporate brand.

Saham Kenya’s non-life capitalisation is viewed as very strong by GCR. Albeit trending downwards as a result of the insurer’s expansion goals, the company’s risk-based capital adequacy is anticipated to remain at strong levels going forward and supportive of the current rating. Capitalisation in the life business also remains adequate.

The insurer’s investment asset allocation remains conservative, with the majority of investments placed in highly liquid instruments. Accordingly, the strong liquidity metrics displayed represent a key rating strength and are expected to be maintained at strong levels over the rating horizon.

Offsetting these positive rating factors is Saham Kenya’s marginal competitive position in the broader market, a function of the company’s historic niche business focus (in credit indemnity), limited scale and market share. While the company’s revised growth strategy is noted, and has aided in a somewhat greater level of product diversification, this is not expected to significantly change its market share within the outlook horizon. Further, GCR views some execution risks linked to the company’s strategic operational changes following the ownership shift. To this end, increased effort has been placed on rebalancing the underwriting account away from the high product exposure to credit indemnity by increasing penetration within the more general insurance classes, which are highly competitive (particularly motor and medical). This notwithstanding, exposure to a core business line derived through a single client, albeit decreasing, continues to present a level of risk to revenue.

The insurer’s underwriting results have also deteriorated notably over the past two years as a result of adverse loss development in a core line of business and a spike in restructuring expenses respectively. As a result, the combined ratio registered at 113% in FY14 (FY13: 117%), with the 5-year average equating to 104%. Going forward, the insurer expects to restore past strong earnings levels, premised on stronger underwriting controls and realisation of scale efficiencies.

Future positive rating actions may result from the development of a successful track record that will see the company deliver on its strategic plans and increase diversity. This would be exhibited through its demonstrated ability to control pricing in highly competitive targeted growth lines, increase its market profile, and sustain profitability. However, the rating may come under pressure if an unfavourable earnings trend continues and/or due to a deterioration in risk-adjusted capitalisation beyond expected levels or the inability to maintain its position in key business accounts.

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (June 2005)    
Claims paying ability: A-(KE)    
Outlook: Stable    
     
Last rating (May 2014)    
Claims paying ability: A-(KE)    
Outlook: Stable    
     

ANALYTICAL CONTACTS

Primary Analyst    
Sheri Few    
Senior Analyst    
(011) 784-1771    
Few@globalratings.net    
     
Committee Chairperson    
Marc Chadwick    
Sector Head: Insurance    
(011) 784-1771    
Chadwick@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Insurance Companies, updated July 2014

Criteria for Rating Life Assurance Companies, updated July 2014

Saham Kenya (previously Mercantile Insurance Company Limited) rating reports (2005-2014)

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.

Saham Assurance Company Kenya 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 Saham Assurance Company Kenya Limited with no contestation of the rating.

The information received from Saham Assurance Company Kenya Limited and other reliable third parties to accord the credit rating(s) included;

  • Audited financial results as per 31 Dec 2014
  • 4 years of comparative numbers
  • Unaudited interim results as per 31 Mar 2015
  • Budgeted financial statements for 2015
  • Actuarial valuation statement for 2015
  • The current year reinsurance/retrocession cover notes
  • Corporate governance and enterprise risk framework
  • Other non-public statistical information

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.

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 of terms utilised in this announcement please click here

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