CIC General rating up after Sh800m capital injection
CIC General Insurance managing director Kenneth Kimani. The firm is banking on technology to reduce payments to fraudsters. PHOTO | FILE
What you need to know:
The capital injection nearly doubled the insurer’s previous capital base of Sh900 million to Sh1.7 billion.
South African Global Credit Rating (GCR) also retained its ability to pay claims at an ‘A’ rating.
CIC General Insurance’s outlook has been upgraded to ‘stable’ from a ‘negative’ rating following a capital injection last year.
South African Global Credit Rating (GCR) also retained its ability to pay claims at an ‘A’ rating.
“The revision of the rating outlook to stable from negative reflects management action aimed at stabilising capitalisation through a series of capital injections, and more recently a formalised dividend policy,” reads the rating report.
GCR said the general insurance wing of CIC benefited from Sh800 million from its parent firm, CIC Group, last year that exceeded the Sh200 million initially planned.
The capital injection nearly doubled the insurer’s previous capital base of Sh900 million to Sh1.7 billion.
CIC Group, which includes life and general insurance businesses, raised Sh5 billion last year through a corporate bond.
The outlook of the general business had been considered negative due to poor capital adequacy resulting from high claims, especially in medical insurance. Last year the insurer reported an underwriting loss of Sh556 million from medical insurance that is its core business.
“The sustained underperformance of the core medical portfolio has begun to increasingly pressure earnings capacity. As such, management’s ability to address weaknesses in pricing and claims controls in its core lines in order to restore historically strong earnings presents a level of execution risk,” read the report.
The insurance group announced a 16.5 per cent drop in net profit to Sh1 billion for 2014, with total claims having risen 43.5 per cent to Sh8.6 billion. The Sh2.6 billion increase in claims wiped out a similar increase in the insurer’s gross premiums and ultimately hurt its underwriting profit.
Medical insurance has been hit hard by fraud and inflated medical bills. The business has also suffered from frequent price increases by hospitals and price wars that lead to setting of premiums not commensurate to risks covered.
The company is also hoping to ride on new technology to reduce fraud.
“This particular system would be able to detect sophisticated fraud scenarios and we trust that once it is fully deployed, we will write profitable medical business as the year comes to a close,” said the company’s managing director Kenneth Kimani in the annual report.
GCR, however, does not see the changes improving the insurers rating in the short term.
“Positive rating actions are unlikely in the near term,” said GCR.
CIC Group is largely driven by the short-term general business which contributed Sh603 million to its bottom line compared to Sh239 million from the life business.
Both lines of business recorded drops in profit. The group also has a unit trust which earned an after-tax profit of Sh26 million.
CIC started operating in South Sudan last year and plans to enter the Ugandan and Malawi market next. The group has set aside Sh1.3 billion for entering the two markets.
