Barclays First Assurance rating cut

Johannesburg ratings firm GCR has downgraded the claims paying ability of Barclays Africa-owned composite insurer, First Assurance, citing expectations of weak profits.

The rating valid until June 2019 changes to A-(KE) from A(KE), with the outlook accorded as ‘stable’. Last year the firm was accorded negative outlook.

GCR said the assessment reflects “a sustained deterioration” in underwriting performance over the last two years.

In September 2015, Barclays Africa bought a 63.3 per cent stake in the insurer for about Sh2.9 billion that included a Sh700 million capital injection.

“The underwriting margin continued to trend within a negative range, averaging -16 per cent over the last two years (FY17: -11 per cent), compared to historically strong margins recorded at the start of the review period,” said GCR.

“Earnings capacity is expected to remain weak over the outlook horizon, with a turnaround in underwriting performance likely over the medium term.”

GCR has assigned a mix of positive and negative outlooks to Kenyan insurers in recent weeks, indicating uncertainly over the prospects for insurers who face new capital rules amid tough competition.

READ: GCR gives Barclays First Assurance negative outlook

GCR noted that substantial premium volume losses during the year saw First Assurance’s market share in the short-term industry shrink to 2.4 per cent last year compared to 3.2 per cent in the previous year.

“In GCR’s view, the insurer’s business profile is likely to remain within an intermediate range, given increasing competitive dynamics,” GCR said.

It said this is likely to shift in case of capital injection and a turn to profitability.

“The rating may benefit from a persistent improvement in earnings capacity, with capitalisation and liquidity also being maintained at strong levels,” it said.