GCR affirms The Heritage Insurance Company Kenya Limited’s rating of AA-(KE); Outlook Stable.
Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to The Heritage Insurance Company Kenya Limited of AA-(KE), with the outlook accorded as Stable.
The South African based firm noted that risk adjusted capitalisation remained within a robust range, supported by strong capital growth catering for the quantum of insurance risk and market exposure. This was further supported by increased profit retention, with limited dividend distributions over the last two years. Accordingly, the adjusted international solvency margin equated to a high 86% at FY17 (FY16: 65%). Risk adjusted capital adequacy may remain within a very strong range over the outlook horizon, supported by strong internal capital generation.
Heritage Kenya’s liquidity profile is strong, supported by robust liquidity metrics and moderately strong aggregated banking counterparty strength. Liquid assets, including government securities, covered net technical liabilities and average monthly claims by a robust 1.5x (FY16: 1.3x) and 35 months (FY16: 31 months) at FY17 respectively. Going forward, liquidity is expected to remain within a strong range, supported by sound operating cashflow generation and balanced asset allocation.
The earnings capacity is viewed to be strong, supported by healthy underwriting profitability and sound investment returns. In this respect, the five year underwriting margin equated to 8% (FY17: 5%; FY16: 7%), while the investment yield registered at 13% (FY16: 12%). Management expects strong growth targets to support increased scale efficiencies, with an underwriting margin of 9% budgeted for FY18. In GCR’s view underwriting profitability is likely to register within a moderately strong range (4% to 7%), given higher net incurred loss ratios and comparatively lower growth projections (in light of increased competitive dynamics).
Heritage Insurance also displays a healthy business profile, underpinned by moderate competitive positioning and fairly well diversified earnings. Heritage Kenya’s market share has been maintained at approximately 4% of short term industry gross premiums over the last four years, largely supported by competitiveness in the medical portfolio. Accordingly, medical, motor and fire represent the core portfolio. In this respect, aggregated product risk is viewed to be moderately limited. Expanded retail exposure may gradually enhance earnings diversification over the medium term.
The rating currently matches the national scale ceiling applicable to entities operating within the Kenyan insurance industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors.