UAP Insurance Sudan Limited’s (“UAP”) domestic SDG claims paying ability rating was reaffirmed at A- (single A minus). However, given the statutory capital shortfall, as well as the continued political instability in the region, the rating was placed on Rating Watch.
Factors supporting the rating were the strong level of underwriting profitability displayed since inception (albeit supported by the low loss ratios, which are a function of the underdevelopment of the insurance sector in Southern Sudan), as well as the sound level of international solvency evidenced over the past four years (bolstered by strong retained earnings). In addition, the conservative investment portfolio was favourably viewed, with a significant weighting in cash and equivalents supporting well above-average liquidity and a low-risk balance sheet. However, with cash funds held with two unrated banks, counterparty risk is considerable.
Some concern, however, remains regarding the US$1.5m statutory capital shortfall and the holding company’s relatively cautious approach to the matter (with the injection of additional capital being conditional to a successful political and economic transition process post the declaration of independence). A further offsetting factor is the challenging operating environment in South Sudan, including the low level of economic diversification, the chronic lack of infrastructure, as well as the absence of a comprehensive regulatory and legislative framework. In addition, political uncertainty surrounding the territorial status of the region prevails, which continues to constrain overall economic activity.
Following the declaration of independence in July 2011, management foresees a noticeable improvement in operating conditions in the medium term. Progress in this regard, however, hinges on government’s commitment to establish a comprehensive legislative and regulatory framework, which is considered an essential aspect in attracting business from new investors and development partners.
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