Channel Lifes A- rating reaffirmed
International rating agency, Global Credit Ratings (GCR), has maintained Channel Lifes financial strength rating of A- (single A minus). The rating denotes strong financial security characteristics, however the asssurer is somewhat more likely to be affected by adverse business conditions.
Senior GCR analyst, Jackie Swan, said that the strong rating was underpinned by the fact that Sanlam owns a majority stake in the business. The company's rating was further supported by the sizeable growth in individual recurring premiums in F06, which is expected to continue on the back of strong growth in policy issuance. This stems from Channel's efforts of creating new distribution channels over the last two years. However, Swan noted that the company's CAR coverage, as per the statutory return, was reported at a low 102%, compared to 161% in F05. As such, given the relatively aggressive new business growth targets, this may place further strain on the CAR ratio going forward. However, cognisance was taken of the companys corporate shareholders demonstrated support through two rights issues, which in total raised R113m in new capital in 2006. As such, this should improve the solvency margin substantially going forward and management have indicated that Channels CAR ratio currently stands at 170%.
The lower to middle income groups form the company's core target market. As such, attracting and more specifically retaining clients from these markets has proven to be difficult, as the portfolio has exhibited a level of price sensitivity. To this end, Swan pointed out that although Channels persistency rates continue to remain low relative to industry norms, cognisance was taken of the improvement in persistency in F06 to 24%, from 14% previously. Further note was taken of the attractive growth rates in the lower income market, thus the company may be exposed to a potential increase in competition, although most large life assurers business models are not suited to this market.
Channel Life CEO Ren Otto says that based on recently released Life Offices Association figures, Channel Life has grown their new business market share in the companys targeted entry-level market by almost 265%, from 1.7% to 6.2% for the 12 month period as at June 2006.
In comparison, the entry-level market segment grew by just 86%.
In the process, Channel Life almost doubled their existing recurring premium book. The book grew from 101,549 to 193,478, in 18 months, indicative of the success of the companys drive to Africanise the life industry. "While this growth is off a low base, it bodes well for the next six months," says Otto.
