Johannesburg, 1 Oct 2014 — Global Credit Ratings has today downgraded the national scale claims paying ability rating assigned to UAP Insurance South Sudan Limited to BBB+(SS); with the outlook accorded as Stable. The rating(s) are valid until 08/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to UAP Insurance South Sudan Limited (“UAP South Sudan”) based on the following key criteria:
Over recent periods, UAP South Sudan’s balance sheet has exhibited heightened investment risk, whilst simultaneously evidencing weakened capital and cash generative capacity. In view of this, the resultant weak liquidity profile and elevated capital risk (with illiquid risky assets accounting for 1.4x of the insurer’s capital base at FYE13) constrains the rating. Balance sheet risk is exacerbated by further planned property developments over the short to medium term. Accordingly, UAP South Sudan displays an intermediate level of capital adequacy on a risk-adjusted basis. As such, a formalised capital management strategy is warranted in view of the high risk exposures on balance sheet and forecast relative business strain.
Owing to rising rates pressure, coupled with elevated relative operating costs, the insurer has displayed significant underwriting margin compression over the review period. Improved underwriting risk management and overhead cost rigor should be demonstrated in order to stabilise and enhance earnings capacity going forward.
GCR views country risk as high, in view of the unstable macroeconomic and political environment in South Sudan. Further, the insurance industry displays very weak regulatory fundamentals, which serves to exacerbate operational challenges.
Positively, the reinsurance programme reflects the good credit quality of treaty counterparties. Furthermore, cognisance is taken of the insurer’s position as the dominant domestic non-life insurer, supported by a well-entrenched brand and a diversified distribution network. In view of this, a robust CAGR of 30% was registered over the review period. GCR expects market strength to be sustained over the rating horizon despite rising competitive pressures.
Over the medium to long term, upward movement on the rating or outlook could stem from a strengthening in risk-adjusted solvency, coupled with an improvement in liquidity metrics, a reduced exposure to investment risk, as well as enhanced and stable underwriting profitability. Conversely, a downgrade may follow sustained weak underwriting profitability and/or a deterioration in risk-adjusted capital adequacy. A further deterioration in liquidity metrics and/or increased balance sheet exposures to investment risks may also result in a downward revision of the rating.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (May/2009)
Claims paying ability: A-(SS)
Last rating (Aug/2013)
Claims paying ability: A-(SS)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (Updated July 2014)
UAP Insurance South Sudan Limited rating reports 2009-2013.
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 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/s 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(s) included the latest 2013 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements for 2014, year to date management accounts for June 2014, the 2014 reinsurance cover notes and other non-public statistical information on the entity and/or industry.
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 downgrades UAP Insurance South Sudan Limited’s rating to BBB+(SS); Outlook Stable.