Johannesburg, 03 July 2017 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to Lion Assurance Company Limited to A+(UG) from A-(UG), with the outlook accorded as Stable. The rating is valid until June 2018.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Lion Assurance Company Limited (“Lion Uganda”) based on the following key criteria:
The rating upgrade reflects Lion Uganda’s maintenance of strengthened earnings capacity, supported by very strong underwriting profitability, while other key credit protection metrics remained at very strong levels. In this respect, the insurer’s underwriting margin equated to 12% in FY16 (FY15: 10%). Earnings capacity is further supported by a sound level of investment income. As such, the operating margin registered at a strong 20% in FY16 (FY15: 18%). GCR expects earnings capacity to remain very strong over the rating horizon. Additionally, the net deductible per risk and event is viewed to be limited to conservative level, while material reinsurance counterparties evidence an intermediate aggregate level of counterparty strength.
Lion Uganda’s capitalisation is viewed to be very strong, underpinned by healthy internal capital generation, catering for the quantum of insurance and market risk exposures. In this respect, the insurer’s international solvency margin equated to a high 105% at FY16 (FY15: 86%). Sound internal capital generation together with fairly conservative dividend distributions, are likely to sustain very strong risk adjusted capitalisation going forward.
The liquidity profile is very strong, supported by healthy operating cash flow generation. In this respect, key liquidity measures registered within a very strong range as evidenced by a high claims cash cover ratio of 42 months (FY15: 35 months), and cash coverage of net technical liabilities of 1.6x (FY15: 1.7x). GCR expects liquidity metrics to remain within a very strong range over the rating horizon, supported by sound cash flow generation and balanced asset allocation.
Lion Uganda reflects a moderately strong competitive position, underpinned by high brand recognition and well established client relationships. In this respect, the insurer’s share of short term industry gross premiums equated to 7% in FY16 (FY15: 6%), supported by a well-diversified gross earnings stream, with five lines of business each contributing in excess of 10% to gross written premiums. Enhanced market share has been targeted going forward, primarily through product development, strengthened strategic partnerships and enhanced brand recognition.
In light of the recent rating action taken, an upgrade of the rating is considered unlikely over the medium term. Conversely, negative rating actions could follow a substantial decrease in risk-adjusted capitalisation and/or a material deterioration in liquidity metrics. Furthermore, sustained weakening in earnings capacity may also have a negative bearing on the rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (June 2014)|
|Claims paying ability: A-(UG)|
|Last rating (June 2016)|
|Claims paying ability: A-(UG)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Zwivhuya Mukosi|
|Sector Head: Insurance Ratings||Junior Credit Analyst|
|(011) 784 – 1771||(011) 784 – 1771|
|Sector Head: Insurance Ratings|
|(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Lion Assurance Company Limited rating reports, 2014-2016
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/RATING-SCALES-DEFINITIONS. 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.
Lion Assurance Company 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 Lion Assurance Company Limited with no contestation of the rating.
The information received from Lion Assurance Company Limited and other reliable third parties to accord the credit rating included:
- The 2016 audited annual financial statements
- 4 years of comparative audited numbers
- Unaudited interim results to 31 March 2017
- Budgeted financial statements for 2017
- 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.
|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.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance 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.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|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.|
|International Scale Rating (“ISR”)||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|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.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|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.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short Term||Current; ordinarily less than one year.|
|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.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a more detailed glossary of term, please click here
GCR upgrades Lion Assurance Company Limited’s rating to A+(UG); Outlook Stable.