Johannesburg, 05 July 2017 — Global Credit Ratings has today affirmed Saham Assurance Company Kenya Limited’s national scale claims paying ability rating of A-(KE), with the outlook accorded as Negative. Global Credit Ratings has simultaneously withdrawn the rating.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Saham Assurance Company Kenya Limited (“Saham Kenya”) based on the following key criteria:
The Negative outlook reflects Saham Kenya’s pressured earnings capacity. Suppressed earnings stem largely from limited scale efficiencies to absorb cost base effects. As such, the insurer’s short term business recorded a fourth consecutive underwriting loss, with losses cumulatively amounting to KES187m (corresponding to 39% of the short term business’ FY16 capital base). GCR expects earnings capacity to remain under pressure over the short term.
As a result of limited earnings capacity, in tandem with continued dividend distributions, risk adjusted capitalisation remained on a downward trajectory over the review period. In this regard, the international solvency margin decreased to 79% at FY16 (FY15: 101%; review period average: 143%), and is projected to remain at similar levels (barring any capital injections). In GCR’s view, the sustained reduction in solvency represents a weakening in credit strength. While management has been in the process of raising additional capital, receipt of the amount remains outstanding.
Liquidity metrics remained at strong levels, underpinned by the insurer’s relatively conservative investment philosophy. In this regard, cash holdings covered net technical liabilities by 1.1x at FY16 (FY15: 1.2x), while the claims cash cover ratio equated to a strong 61 months (FY15: 49 months). The metrics are expected to remain within a strong range over the medium term (albeit reflecting scope for a potential reduction).
Saham Kenya reflects improving earnings diversification, with concerted efforts to reduce the significant concentration to one line of business. Nevertheless, the competitive position remains limited, with the insurer accounting for about 1% of short term industry gross premiums in FY16. While potential growth in long term business presents a source of earnings generation, no significant changes in market share are expected over the rating horizon.
The reinsurance panel, which is led by Trust Re (50%), reflects a moderately high aggregate level of credit strength. Furthermore, the maximum net deductibles per risk and event are limited to levels which are viewed to be moderately conservative relative to capital (FY16: 1.6%).
The rating withdrawal was at the request of the client. Therefore, GCR will no longer provide ratings or analytical coverage for Saham Kenya.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (June 2005)|
|Claims paying ability: A-(KE)|
|Last rating (May 2016)|
|Claims paying ability: A-(KE)|
|Primary Analyst||Committee Chairperson|
|Yvonne Mujuru||Marc Chadwick|
|Sector Head: Insurance Ratings||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Criteria for Rating Long Term Insurance Companies, updated July 2016
Saham Kenya reports, 2015-2016
Mercantile Insurance Company Limited rating reports, 2005-2014
Kenya Short Term Insurance Bulletins, 2014-2016
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. 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 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 included:
- Audited financial results to 31 December 2016
- Four years of comparative numbers
- Budgeted financial statements for 2017
- Actuarial valuation statements for 2016
- Financial Condition Report for 2016
- 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 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 Saham Assurance Company Kenya Limited’s rating of A-(KE); withdraws rating.