NAIROBI, 2 June 2016 – Senior Analysts from S&P Global Ratings briefed Heads of Kenya’s top-tier banks and insurers today in a forum aimed at educating the sectors on the use of ratings and how its criteria is applied to the Kenyan financial services sector. The analysts also explained S&P Global’s approach and conditions required to be able to rate issuers above their sovereign rating.
Neil Gosrani, Director of Financial Services Ratings at S&P Global, who presented at the event commented, “Credit ratings are opinions about credit risk. Our ratings express our opinion about the ability and willingness of an issuer, such as a bank, insurer, corporate or state or city government, to meet its financial obligations in full and on time. Credit ratings may play a useful role in enabling corporations and governments to raise money in the capital markets. Investors and other market participants also use ratings as a screening device to match the relative credit risk of an issuer or individual debt issue with their own risk tolerance or credit risk guidelines in making investment and business decisions.”
However, S&P Global stresses, sovereign ratings are not an absolute cap or constraint for the ratings of an individual entity, especially for insurance companies, if some specific conditions are met. In the case of banks and insurers, S&P Global assesses a number of areas, including the financial and business risk profiles among other aspects. S&P Global also assigns a stand-alone assessment to companies before taking into account the risk related to the sovereign ratings.
S&P Global cites numerous examples of companies in Africa that have ratings above the foreign currency sovereign rating such as Santam in South Africa. There are even examples in the US, such as Johnson & Johnson and Microsoft Corp., both of which exceed the country’s sovereign rating.
ATI itself provides a strong case that a company does not have to be constrained by the sovereign rating of the country in which it is based. ATI obtained its first assessment and rating from S&P Global in 2008 and it continues to maintain a rating of ‘A’ with a stable outlook, which far exceeds the sovereign rating of all its African member countries.
ATI, along with First Reinsurance Brokers Ltd (First Re), co-hosted the forum. For ATI, the event supports its vision to educate and increase awareness about the importance of mitigating all aspects of risk in order to create more competitive industries and, ultimately, to support its member countries in attracting greater levels of investments and trade flows.
“The key message we hope participants take away from this event is, with a rating in place, companies are able to differentiate themselves from their competitors and to better assess and demonstrate their creditworthiness and ability to pay claims. This leads to a stronger company,” notes George Otieno, ATI’s Chief Executive Officer.
And for First Re, the event creates an important forum for all stakeholders. It is a common ground that brings awareness which is helpful in self-assessment/gauging particularly in view of the separation from sovereign rating. This is especially useful in insurance and reinsurance whose transactions are global in practice and nature, observes Mr Karanja Kabage, FirstRe’s Group Chairman.
