Johannesburg, 11 Jun 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to UAP Insurance Company Limited of AA-(KE); 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 UAP Insurance Company Limited (“UAP”) based on the following key criteria:
UAP has operated in the Kenyan insurance market for over 80 years, and covers the full spectrum of short term insurance lines. The company previously operated in the life space, however, this business was transferred to UAP Life Assurance Limited in 2008. UAP is a 100% owned subsidiary of UAP Holdings, a pan-African financial services group with interests in insurance, investment management, property development and investments, securities brokerage and financial advisory. Currently, UAP Holdings has 16 businesses operating in Kenya, Uganda, South Sudan, the DRC, Rwanda and Tanzania. UAP is the primary operating subsidiary of UAP Holdings, representing 57% of F13 group GWP, and 57% of after tax profits.
The rating recognises UAP’s well-established franchise and solid business position (3rd largest) in a highly competitive non-life market, cemented by its demonstrated ability to enhance its premium base at a consistently robust pace. Furthermore, underwriting margins have registered at high levels over recent years, underpinned by improved cost efficiencies. While a sound underwriting trajectory is expected to be maintained going forward, management will need to ensure effective pricing discipline in order to sustain these levels. The sound panel of reinsurers was also viewed positively. The insurer does, however, display significant market and credit risk in relation to its exposure to listed equities (representing 54% of capital), real estate (41%), as well as a sizeable intercompany loan (19%). These are, however, considered manageable in view of the company’s current risk absorption capacity. To this end, UAP’s capitalisation is deemed strong, with international solvency reported at a sound 118% on a traditional basis and 52% on a risk-adjusted basis. This is largely underpinned by solid ongoing profitability, as well as capital gains. GCR expects the insurer’s capital adequacy to remain sturdy going forward. In light of the aggressive investment risk appetite, cognisance was also taken of the company’s resultant constrained liquidity profile (liquidity metrics lag well behind peers).
UAP’s rating could be upgraded if it is able to maintain its market share while sustaining strong risk-adjusted capitalisation and recurring core profitability, whilst liquidity metrics improve notably. However, a deterioration in capitalisation due to profit or heightened investment volatility and/or a reduction in key liquidity metrics from current levels may impact adversely on the rating status.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (Jun/2007)
Claims paying ability: AA(KE)
Last rating (Jun/2013)
Claims paying ability: AA-(KE)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013)
UAP Insurance Company Limited (“UAP”) rating reports 2007- 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.
UAP Insurance 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 UAP Insurance Company Limited with no contestation of the rating.
The information received from UAP Insurance Company Limited and other reliable third parties to accord the credit rating(s) included the 2013 audited annual financial statements (plus four years of comparative numbers), 2014 full year detailed budgeted financial statements, March 2014 year to date management accounts, the 2014 reinsurance cover notes, 2013 Financial Condition Report, the latest available Group Enterprise Risk Management policy document and 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.
GCR affirms UAP Insurance Company Limited’s rating of AA-(KE); Outlook Stable.