Announcements Insurance Rating Alerts

GCR revises ICEA LION Life’s national scale financial strength rating to AA(KE) on criteria change; Outlook Stable

Rating Action

Johannesburg, 22 November 2019 – GCR Ratings (“GCR”) has revised ICEA LION Life Assurance Company Limited’s (“ICEA LION Life”) national scale financial strength (formerly claims paying ability) rating to AA(KE), from AA-(KE), Stable Outlook.

Rated Entity / Issue

Rating class

Rating scale

Rating

Outlook/Watch

ICEA LION Life Assurance Company Limited

Financial strength

National

AA(KE)

Stable Outlook

GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for ICEA LION Life was placed ‘Under Criteria Observation’. GCR finalised the review for ICEA LION Life under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for ICEA LION Life has been revised in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.

Rating Rationale

The rating of ICEA LION Life mirrors the strengths and weaknesses of ICEA LION Life and its subsidiaries (together “the group”), with the insurer being the core operating entity, accounting for 76% of the group’s total gross written premiums in FY18. Key rating strengths include a robust financial profile and moderately strong market position. In this respect, the group’s risk adjusted capitalisation is assessed at very strong levels, supported by the maintenance of a sizable capital base, sufficient to absorb aggregate risk exposures while the core operating entity exhibited a similar strength, with statutory CAR coverage registering at 278% at FY18. Despite suffering recurrent pressure stemming from an increase in actuarial liabilities following substantial growth in the annuities business in the prior year and an escalation in regulatory risk margins in FY18, the group’s earnings exhibited some level of resilience which is expected to be sustained going forward given the recent downward revision in regulatory risk margins.

Liquidity is assessed at an intermediate range, underpinned by a conservatively invested asset portfolio. Accordingly, the liquidity ratio equated to 1.1x at FY18, while cash and stressed financial assets covered operational cash requirements by 24 months.

The business profile is considered healthy, underpinned by a moderately strong competitive position and an intermediate level of premium diversification. In this regard, the group’s share of total premiums written in covered markets equated to 7% in FY18 and is expected to be sustained at a similar level over the rating horizon. Furthermore, significant premiums are derived from three distinct lines of business, with additional diversification stemming from the granularity associated with the underlying policyholders.

Outlook Statement

The Stable Outlook reflects expectations of persistent financial profile strength while factoring in potential earnings variability.

Rating triggers

Upward rating movement may follow a sustained improvement in earnings and liquidity, while risk adjusted capitalisation is maintained at strong levels. Conversely, negative rating pressure may stem from a material reduction in risk adjusted capitalisation and earnings.

Analytical Contacts

Primary analyst

Tichaona Nyakudya

Credit Analyst

Johannesburg, ZA

TichaonaN@GCRratings.com

+27 11 784 1771

     

Committee chair

Vinay Nagar

Senior Credit Analyst

: Insurance Ratings

Johannesburg, ZA

Vinay@GCRratings.com

+27 11 784 1771

     

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019

Criteria for Rating Insurance Companies, May 2019

GCR Ratings Scales, Symbols & Definitions, May 2019

GCR Country Risk Scores, June 2019

GCR Insurance Sector Risk Scores, November 2019

Ratings History

ICEA LION Life Assurance Company Limited

Rating class

Review

Rating scale

Rating

Outlook

Date

Claims paying ability

Initial

National

AA(KE)

Stable

October 2000

Last

National

AA-(KE)

Stable

September 2018

Risk Score Summary

Risk scores

ICEA LION Life Assurance Company Limited

 

 

Operating environment

8.75

Country risk score

4.25

Sector risk score

4.50

   

Business profile

0.50

Competitive position

0.50

Premium diversification

0.00

Management and governance

0.00

 

 

Financial profile

2.25

Earnings

0.75

Capitalisation

2.00

Liquidity

(0.50)

   

Comparative profile

0.00

Group cap

0.00

Government support

0.00

Peer analysis

0.00

   

Total Score

11.50

Glossary

Assets

A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.

Balance Sheet

Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.

Budget

Financial plan that serves as an estimate of future cost, revenues or both.

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.

Catastrophe

An event, which causes a loss of extraordinary magnitude.

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.

Contract

An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the 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.

Diversification

Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.

Dividend

The portion of a company’s after-tax earnings that is distributed to shareholders.

Equity

Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.

Experience

A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time period.

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.

Financial Flexibility

The company’s ability to access additional sources of capital funding.

Financial Statements

Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.

Income Statement

A summary of all the expenditure and income of a company over a set period.

Interest

Money paid for the use of money.

Interest Rate

The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.

Investment Income

The income generated by a company’s portfolio of investments.

Investment Portfolio

A collection of investments held by an individual investor or financial institution.

Liabilities

All financial claims, debts or potential losses incurred by an individual or an organisation.

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.

Loss

The happening of the event for which insurance pays.

Market Risk

Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.

Net Profit

Trading/operating profits after deducting the expenses detailed in the profit and loss account such as interest, tax, depreciation, auditors’ fees and directors’ fees.

Net Retention

The amount of insurance that a ceding company keeps for its own account and does not reinsure.

Operational Risk

The risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. This includes legal risk, but excludes strategic risk and reputational risk.

Personal Lines

Types of insurance, such as auto or home insurance, for individuals or families rather than for businesses or organisations.

Policy

The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.

Policyholder

The person in actual possession of an insurance policy.

Pool

An organisation of insurers or reinsurers through which particular types of risk are underwritten and premiums, losses and expenses are shared in agreed-upon amounts.

Premium

The price of insurance protection for a specified risk for a specified period of time.

Rating Horizon

The rating outlook period

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.

Salient Points of Accorded Ratings

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of rated entities, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to ICEA LION Life Assurance Company Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

ICEA LION Life Assurance Company Limited participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from ICEA LION Life Assurance Company Limited and other reliable third parties to accord the credit rating included:

  • Audited financial statements as at 31 December 2018;
  • Four years of comparative audited financial statements to 31 December
  • Full year budgeted financial statements for 2019;
  • Unaudited interim results to 31 March 2019;
  • Reinsurance cover for 2019; and
  • Other relevant documents.
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