GCR gives Merali's Fidelity Shield Insurance negative outlook

Billionaire Naushad Merali-associated Fidelity Shield Insurance has been accorded a negative outlook by South African-based Global Credit Ratings (GCR) due to potential sustained weakened earnings capacity.

But the agency maintained the insurer’s national scale claims paying ability of BBB(KE), which is valid until October, 2019.

GCR in its latest notification said the insurer statutory solvency, which is below minimum requirements, can negatively impact the entity’s credit profile.

“Internal capital generation continued on a downward trend over the review period underpinned by weak underwriting profitability, and more recently, a reduction in investment returns,” said GCR.

The agency said Fidelity Shield’s adjusted capitalisation moderated in 2017, albeit remaining within a strong range. It said this was as a result of increased market and insurance risk.

GCR said the international solvency margin lowered to 70 per cent in 2017, further hampered by limited capital growth.

The agency said the risk-based capital adequacy requirement coverage on a statutory basis improved in 2017, albeit remaining below the prescribed minimum of 100 percent.

The insurer’s management plans to meet the required minimum by end of the year by improving debtor collection as well as disposing of two properties.

“The inability of the insurer to meet minimum regulatory requirements may impact negatively on the entity’s credit profile going forward, should this result in regulatory action,” said GCR.

Data from Insurance Regulatory Authority (IRA) shows that as at December 31, 2017, Fidelity Shield Insurance controlled 1.89 percent of general insurance market share.