Johannesburg, 30 September 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to UAP Insurance South Sudan Limited at BBB+(SS), with the outlook accorded as Stable. The rating is valid until August 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to UAP Insurance South Sudan Limited (“UAP South Sudan”) based on the following key criteria:
UAP South Sudan displays a very strong competitive positioning, with a market share of 35% in FY15. This is underpinned by strong brand recognition, diversified distribution networks and group synergies, allowing for high levels of uptake in select products and enhanced positioning in key lines. In this regard, competitive positioning is expected to remain at a very strong level over the medium term.
Earnings capacity registered at a strong level, underpinned by sound underwriting and investment inflows. In this regard, the aggregate underwriting margin registered at a higher 9% in FY15 (FY14: 7%), underpinned by a favourable cost experience. Earnings capacity is expected to remain at a strong level over the rating horizon.
Capitalisation has measured at a moderately strong level and is expected to remain at this level over the rating horizon. Capital growth has been underpinned by sound capital generation, and a conservative dividend strategy. On an SSP basis, the capital base increased to SSP235bn at FYE15 (FYE14: SSP28bn), largely underpinned by currency gains, resulting in the international solvency margin spiking to 448% (FY14: 79%). Nonetheless, on a USD basis, the international solvency margin remained relatively unchanged at a moderately strong level of 79%. Going forward, sound capital generation is expected to sustain capital metrics at a moderately strong level.
Liquidity metrics measured at a strong level, underpinned by operational inflows. In this regard, cash coverage of technical liabilities and claims registered at a higher 16 months and 0.7x respectively at FYE15 (FYE14: 6 months and 0.3x respectively). Liquidity metrics are expected to remain at a strong level over the rating horizon, underpinned by the insurer’s conservative investment strategy. Asset risk measured at an intermediate level, with the high risk assets to capital ratio registering at 56% at FYE15 (FYE14: 129%). Asset risk stems mainly from significant market and credit risk exposures to investment property and sizeable intercompany loans.
Earnings diversification is limited, with the motor and medical lines contributing a combined 86% of net premiums in FY15 (FY14: 81%). Nonetheless, this is offset by the low product risk associated with these lines. Earnings diversification is expected to remain limited over the rating horizon. Reinsurance counterparties display sound aggregate strength, whilst deductible limits are viewed to be set at conservative levels, less than 0.1% of FYE15 capital.
GCR views country risk factors to be elevated, in view of the unstable macroeconomic and political environment in South Sudan. Further, the insurance industry displays very weak regulatory fundamentals, which exacerbate operational challenges.
Over the medium to long term, upward movement on the rating or outlook could stem from a strengthening in risk-adjusted capitalisation, coupled with an improvement in liquidity and reduced exposure to investment risk. Conversely, negative rating action could result from a further deterioration in liquidity metrics and/or increased balance sheet exposure to investment risks. In addition, sustained weak underwriting profitability and/or deterioration in risk-adjusted capital adequacy may also place negative pressure on the rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (May 2009)|
|Claims paying ability: A-(SS)|
|Last rating (August 2015)|
|Claims paying ability: BBB+(SS)|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2016
UAP South Sudan rating reports, 2009-2015
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.
UAP Insurance South Sudan 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 UAP Insurance South Sudan Limited with no contestation of the rating.
The information received from UAP Insurance South Sudan Limited and other reliable third parties to accord the credit rating included:
- Audited financial results as at 31 December 2015 4 years of comparative audited numbers
- Unaudited year to date results to 30 June 2016
- Budgeted financial statements for 2016
- The current year 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.
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 please click here
GCR affirms UAP Insurance South Sudan Limited’s rating of BBB+(SS); Outlook Stable.