UAP Life has sunk deeper in the red with Sh453 million loss in the ten months to October, wiping out recent capital injections by South Africans and earning a downgrade of its credit outlook.
South African rating agency GCR accorded the insurer recently acquired by Old Mutual a BBB+ rating on ability to settle claims but lowered its outlook to negative from stable.
“Large bottom line losses incurred for the ten months to October 2015, Sh453 million, have been registered, eroding almost all additional capital injected into the business during the course of the year — cumulatively amounting to Sh500 million,” said GCR.
Old Mutual plans to inject an additional Sh500 million next year to ensure UAP’s compliance with statutory solvency ratios.
The insurer posted a net loss of Sh190 million last year eating into its capital position.
“The negative outlook reflects GCR’s view of this sustained weakness in capital adequacy, which could persist over the outlook horizon should losses continue to emanate — from either the investment or operating accounts,” said the agency.
UAP controls 3.22 per cent of the Kenyan life insurance market. GCR expects UAP’s competitive position to improve with the entry of Old Mutual which could cater for any revenue fluctuations over the short term.
Sources close to the insurer said its performance could have been hurt by staff anxiety over possible job cuts following the acquisition by Old Mutual. Old Mutual has its own life business in the country which controls 2.9 per cent of the market.
Old Mutual Life itself posted losses in the six months to June as per data from Insurance Regulatory Authority.
UAP Life is a subsidiary of UAP Holdings which also has general insurance, investment management, property management and financial advisory arms. The insurer also operates regional units in Uganda, Tanzania, Rwanda, South Sudan and Democratic Republic of Congo.
The holding company posted a Sh237 million half-year loss attributed to a rise in financing cost arising from a Sh2 billion bond issued last year.
UAP becomes the third Kenyan insurer to be downgraded to negative outlook from stable position by GCR in the last month underlining capital adequacy concerns in the sector. Negative outlook reflects potential for the rating to be downgraded over the short-term should identified concerns persist.
Fidelity Shield and Cannon Insurance have been rated negatively due to reduction in capital positions.
Insurers usually seek credit rating on their ability to settle claims in order to attract corporate business.
Changes in rules governing the sector are likely to push all insurers to seek credit ratings in order to lower their capital requirements.
The insurance Act was changed in June requiring insurers to hold capital based on the business risk including credit risk, whose requirement is pegged on their rating.
Currently, insurers are required to hold a minimum capital of Sh300 million for life business and Sh150 million for short term. The insurers also have to observe mandatory solvency ratios which indicate their ability to settle claims as they arise.