The rating results from a combination of its fair business risk profile and less than adequate financial risk profile, which is based on its moderate market position in a competitive and well-penetrated South African insurance market, as well as its lower adequate capital earnings.
According to Adam Samie, CEO at Lion of Africa Insurance, "Despite the tough economic and industry operating risks in South Africa, we have been able to maintain a competitive advantage in the market and are positioned for further growth.
"This is further affirmed by our level one Broad Based Black Economic Empowerment position which no other short-term insurance company in South Africa has been able to attain to date."
While Lion of Africa Insurance may have been constrained by its small capital base in 2012, Standard & Poor's expects recovery in underwriting profitability towards the end of this year, which would enable the company to maintain capital adequacy above the 'BBB' level for the next two years.
In addition, Standard and Poor's notes that Lion of Africa Insurance's intermediate risk position reflects its exposure to equities and the domestic financial services sector, although mainly to domestic highly systematic banks, in its investment portfolio and currently does not identify any significant sources of capital and earnings volatility.
Lion of Africa Insurance's enterprise risk management (ERM) and management and governance practices have further been considered as neutral factors for its rating. The positive ERM assessment reflects its ongoing improvements to its tools and controls. Furthermore, its management and governance has been assessed as fair due to its ambitious premium and financial growth targets and small management team with appropriate risk tolerances and good transparency.
Moreover, the company's liquidity is considered to be strong, reflecting the current balance of confidence-sensitive liabilities and access to ample sources of liquidity from its liquid investments and deposit portfolio.
For more information, go to www.lionsure.com.
