First Assurance rating up on Barclays acquisition

September 23, 2015 / By first

First Assurance’s credit rating has gone up following acquisition by Barclays Africa in June.

South African Global Credit Rating (GCR) assigned the insurer an A on its claims paying ability, up from A- accorded last year. This follows the purchase of a 63.3 per cent stake in the company by Barclays Africa for Sh2.2 billion accompanied by capital injection of Sh700 million.

“The rating upgrade reflects First Assurance’s consistent track record of operating profitability, which has been generated by positive net underwriting income and supplemented by solid investment returns,” said GCR in its rating report.

The insurance outlook was considered stable indicating the rating agency expects it to grow its profitability at the prevailing rates.

First Assurance posted an after tax profit of Sh517 million last year up from Sh376 million in 2013 driven by growth in underwriting premium.

The insurance company is heavy on short-term business with GCR noting that its earnings were concentrated on motor and medical business at a combined 73 per cent of the risk base.

Last year, First Assurance wrote gross premiums worth Sh4.4 billion (a 15.7 per cent jump from the 2013’s Sh3.8 billion) with Sh4.2 billion in general insurance. Its net assets grew 25.6 per cent to Sh2.16 billion.

GCR however raised concern over the insurer’s high asset allocation to property, citing it as an investment risk exposure.

Some of the property owned by the insurance company include houses in Karen and land on Ngong Road on which it intends to put up office space. The rating agency expects the insurer to grow its market share riding on Barclays Africa infrastructure.

“This (the acquisition) could potentially elevate the insurer’s business profile over the medium term particularly in view of the strong distribution platform available for cross-selling,” said GCR.

The upgrade will offer Barclays Africa assurance that it made a solid investment. The lender has been lagging its rivals in the banking sector who have delved into the insurance sector through bancassurance model. Banks are counting on their financial strength, wider outreach and public confidence to penetrate the insurance sector which has been dogged by the collapse of some key players.

Insurance penetration in the country is currently below four per cent underlining the opportunities in the sector.

KCB said it earned Sh155.2 million pre-tax profit from its unit last year, its first full year of operation. Equity Insurance Agency posted a pretax profit of Sh396 million while NIC recorded Sh26.3 million.

Barclays Kenya was awarded a bancassurance licence by the Insurance Regulatory Authority leading to the opening of Barclays Insurance Agency last February.

Source: Business Daily