Johannesburg, 01 Jul 2013 — 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 6/2014.
Global Credit Ratings has accorded the above credit rating(s) on UAP Insurance Company Limited based on the following key criteria:
UAP Insurance Company Limited (“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 12 businesses operating in Kenya, Uganda, South Sudan, the DRC and Rwanda, and has recently entered Tanzania. UAP is the primary operating subsidiary of UAP Holdings, representing 65% of F12 group GWP, and a sizeable proportion of after tax profits.
UAP’s demonstrated ability to consistently enhance its premium base, entrenching its position as one of the leading insurers in the domestic market was favourably viewed. Moreover, underwriting margins have been reported at review period highs in recent years, underpinned by improved cost efficiencies, and are projected to remain robust over the medium term. On the back of substantial unrealised investment gains, complemented by healthy net profits, shareholders interest climbed 63% to KShs4.9bn at FYE12. International solvency rose accordingly, to a review period high of 101% (F10: 79%), and is projected at 82% in F13. Capital and solvency risk is, however, expected to remain elevated going forward, in view of a sizeable intercompany loan, and significant listed equity and investment property exposures (cumulatively representing 133% of FYE12 capital). Furthermore, a high degree of concentration risk is evident regarding quoted counters. Cash holdings remain relatively subdued, with key liquidity ratios reported below industry norms. On a combined basis, motor and health represented a high 80% of NWP, which implies heightened operational risk.
In view of UAP’s relatively subdued cash position, exacerbated by sizeable intercompany loans, this serves as an impendent to a rating upgrade over the short term. Upward movement of the rating over the medium to longer term could develop through a reduction in capital risk and a meaningful strengthening in key liquidity measures, while maintaining underwriting margins and solvency metrics at similar levels. A further reduction in key liquidity metrics may impact adversely on the rating status. In addition, increasing loans to related parties would further serve to undermine capital, and would be negatively viewed.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Jun/2007)|
|Claims paying ability: AA(KE)|
|Last rating (Apr/2012)|
|Claims paying ability: AA-(KE)|
|Sector Head: Insurance|
|+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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 included the latest audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, the current year reinsurance cover notes, debtors provisioning policy document, ERM processes/framework (including catastrophe management framework), reserving methodologies, capital management policy.