Johannesburg, 11 July 2016 — Global Credit Ratings has today upgraded the national scale financial strength rating assigned to Liberty Life Assurance Kenya Limited to AA-(KE), with the outlook accorded as Stable. The rating is valid until June 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Liberty Life Assurance Kenya Limited (“Liberty Life Kenya”) based on the following key criteria:
GCR views Liberty Life Kenya’s stand-alone credit profile as deriving upliftment from implied shareholder support, following the rebranding exercise undertaken. In this respect, Liberty Life Kenya (formerly “CfC Life Assurance Limited”) is a 100% owned subsidiary of Liberty Kenya Holdings Limited, which is majority-owned by South African based Liberty Holdings Limited (“the group”). This view is further supported by Liberty Life Kenya’s moderate success in contributing to overall group growth and profit objectives, with systems integration, technical expertise and operational support available from the group.
The insurer reflects a strong competitive position, with an increased 8% of industry revenues (excluding deposit administration) in FY15 (FY14: 6%). This has been underpinned by higher than industry average growth rates over the last three years, supported by a strong distribution channel network. Going forward, increased operational and branding alignment with the group is expected to cement competitive positioning. Over the medium term, group capabilities are expected to provide enhanced distribution and product management competencies, while franchise value is expected to contribute positively to market confidence.
Liquidity is strong, having measured at a high level throughout the review period, supported by sound cashflow generation. Total investments coverage of total policyholder liabilities registered at a stable 1.1x at FYE15. Sustained cashflow generation, coupled with a balanced investment allocation strategy, is expected to maintain liquidity metrics at a strong level. Asset liability matching has measured at a strong level, recently supported by an asset liability matching model from the group. In this respect, listed shares and investment property represented a significant proportion of the investment portfolio (FYE15: 24%), given the dominance of with-profits products within the gross premium base.
The insurer’s capital base increased to KES2.1bn at FYE15 (FYE14: KES1.9bn), supported by robust internal capital generation. In this respect, capital grew by a compound annual growth rate (“CAGR”) of 20% over the review period. As such, risk adjusted capital adequacy remained strong at FYE15. This is expected to be maintained going forward, given forecast sustained sound capital generation, and the adopted risk-based capital, economic capital and scenario testing models from the group.
Earnings capacity has measured at a sound level, supported by a low claims experience and relatively stable investment income inflows (which is a function of the sizeable investment portfolio). As such, the operating margin has registered at a five year aggregate level of 10%. Liberty Life Kenya’s operating expenses increased to KES1.3bn in FY15 (FY14: KES1.1bn), impacted by rebranding activities, as well as other once-off expenses associated with business acquisition. Going forward, operating margins could strengthen, on the back of improved cost efficiencies, underpinned by the insurer’s cost moderation initiatives.
The insurer’s earnings spread, while evidencing limited diversification, benefits from the high weighting towards low to intermediate risk product offerings. The establishment of new distribution channels to boost group life business could gradually see increased diversification over the medium term. The quality of the insurer’s reinsurance counterparties is considered sound, with net deductibles set at conservative levels relative to capital.
The rating currently matches the national scale ceiling applicable to entities operating within the Kenyan insurance industry. In this regard, positive rating action may follow an assessment of country and industry risk factors. Negative rating action could result from a sustained weakening in the insurer’s financial profile, with key credit protection metrics softening markedly against historic norms.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (May 2013)|
|Financial strength: A+(KE)|
|Last rating (June 2015)|
|Financial strength: A+(KE)|
|Primary Analyst||Committee Chairperson|
|Rodwell Chevure||Marc Chadwick|
|Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Long Term Insurance Companies, updated July 2015
Liberty Life Kenya, previously known as CfC Life Assurance Limited (“CfC Life”), 2013-2015.
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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Actuarial||Having to do with insurance mathematics.|
|Assets||The items on the balance sheet of the insurer which show the book value of property owned.|
|Assurance||Terminology used to describe life insurance.|
|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.|
|Bond||A certificate issued by a government or corporation as evidence of a debt.|
|Capacity||The largest amount of insurance or reinsurance available from a company.|
|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.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Insurance||A formal social device for reducing risk by transferring the risks of several individual entities to an insurer.|
|Insured||A person or organisation covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits.|
|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||The happening of the event for which insurance pays.|
|Long term (“LT”)||Not current; ordinarily more than one year.|
|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.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business. Also, the total securities owned by an insurer.|
|Provision||A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.|
|Rate||The pricing factor upon which the insurance buyer’s premium is based.|
|Rating||The statistical process by which insurers determine risks and pricing for the basic classes of insurance.|
|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.|
|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.|
|Securities||Evidences of a debt or of ownership, such as stocks, bonds, and checks.|
|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.|
|Surplus||The excess of assets over liabilities.|
|Valuation||Estimation of the value of an item, usually by appraisal.|
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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.
Liberty Life Assurance Kenya 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 Liberty Life Assurance Kenya Limited with no contestation of the rating.
The information received from Liberty Life Assurance Kenya Limited and other reliable third parties to accord the credit rating included;
- Audited financial results of Company as at 31 December 2015
- Four years prior audited financial statements
- Unaudited interim results as per 31 March 2016
- Budgeted financial statements for 2016
- Actuarial valuation statement for 2015
- Financial condition report 2015
- The current year reinsurance cover notes
- Other non-public statistical information
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 upgrades Liberty Life Assurance Kenya Limited’s rating to AA-(KE); Outlook Stable.