Johannesburg, 02 Sep 2013 — Global Credit Ratings has today upgraded the national scale claims paying ability rating of AIG Kenya Insurance Company Limited to AA-(KE); with the outlook accorded as Stable. The rating(s) are valid until 8/2014.
Global Credit Ratings has accorded the above credit rating(s) on AIG Kenya Insurance Company Limited based on the following key criteria:
AIG Kenya Insurance Company’s (“AIG Kenya”) well-entrenched position in the Kenyan non-life insurance industry is underpinned by strategic relationships with predominantly multinational corporates. Furthermore, the global group relationship provides the insurer with strong franchise value and internal structures that enable the company to underwrite large technical risks. A comprehensive reinsurance programme, anchored by an American International Group Inc (“AIG”) subsidiary, also sizeably enhances the insurer’s capacity. While counterparty risk is inherent in the group-wide risk transfer, comfort is derived from AIG’s strengthening fundamentals, which underlie the secure financial strength ratings of its insurance subsidiaries. In this regard, the insurer was deemed to be of high strategic importance to its ultimate parent, warranting a single notch upliftment above its standalone credit profile.
Strong retained earnings and a dividend moratorium saw the international solvency margin register well above budget as at FYE12. The planned adoption of a formalised risk-based capital model over the medium term and implied capital support from its parent were also considered in support of the rating. Rigorous management oversight and a conservative underwriting philosophy have underscored strong (albeit softening) margins in recent years. This has been achieved despite the insurer’s conservative retention and increasing skew towards motor. AIG Kenya’s prudent investment strategy and resultantly robust liquidity metrics, which are well ahead of industry averages, also provide a strong underpin to the rating. While further refinement of the risk framework is supportive of sustainably sound medium term underwriting cash flows, this is subject to losses being maintained at current levels, given the insurer’s relatively high cost base.
Upward rating pressure could derive from improved market penetration, together with consistently robust underwriting profitability and the maintenance of international solvency within internal management targets. However, erratic or persistently weak operating performance would bear potential downside risk to the rating. In addition, asset quality impairment, deriving from a marked deterioration in the value of investments or a poorly performing debtors book would compromise solvency. Downward pressure on the ratings of AIG Kenya’s ultimate parent would also warrant rating action.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Jun/2009)|
|Claims paying ability: A(KE)|
|Last rating (Jun/2012)|
|Claims paying ability: A+(KE)|
|+27 11 784 1771|
|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.
AIG Kenya Insurance 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 and was queried by AIG Kenya Insurance Limited, with additional information provided by the entity. Following further consultation, the rating upgrade was upheld.
The information received from AIG Kenya Insurance Company Limited and other reliable third parties to accord the credit rating included audited 2012 financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, management accounts to June 2013, the current year reinsurance cover notes, debtors provisioning policy document, risk management processes/framework, reserving methodologies and the capital management policy.