Saham, the Moroccan-owned insurer, has posted losses in its core business for the third year running compelling South African rating agency GCR to classify its outlook as negative. The insurer posted an underwriting loss of Sh63 million pushing its cumulative underwriting losses over the three years to Sh154 million.
The GCR retained Saham’s ability to settle claims at A- noting majority shareholders had given a written commitment to inject additional capital into the business if needed.
“The negative outlook reflects the potential for earnings capacity to remain under pressure over the rating horizon,” reads the rating report.
Last year, the insurer collected gross premiums of Sh1.2 billion of which Sh678 million or 56 per cent was passed on to reinsurers leaving it with a net premium of Sh542 million to cater for its costs according to data from Insurance Regulatory Authority (IRA).
The firm which was founded in 1995 has interests in insurance, business process outsourcing , healthcare and real estate.
The insurer’s management is said to have set high growth targets for its net earned premiums through higher retention of business, meaning cutting back on risk passed on to reinsurers.
The average retention rate in the country’s general business is 74 per cent indicating Saham is operating below average. The rating agency was, however, skeptical of the plan noting the risks associated with lower reinsurance.
“GCR expects the insurer’s underwriting trend to remain under pressure, given the execution risk associated with attaining sufficient net premium scale to dilute the total expense ratio to a level facilitating margin headroom,” said the rating agency of the underwriter formerly known as Mercantile Insurance Company.
The firm which operates across 23 countries in Africa and the Middle East paid out Sh224 million in claims last year. As per the IRA, Saham recorded an underwriting loss of Sh63 million with motor vehicle business recording the largest loss of Sh50 million.
The GCR noted the insurer enjoys a strong liquidity position with its cash holding covering 31 months of its average monthly claims though.
Saham is also said to be diversifying its business classes in search of growth.
The Casablanca-based financial services firm has in the past made known intentions to set up clinical laboratories, polyclinics, diagnostic centres, dental offices, radiology, imaging units and nursing homes for the elderly to replicate its model in Morocco.
Morocco’s Saham Group entered the Kenyan market two years ago after acquiring a 66.7 per cent stake in the Lalit Pandit Family-owned Mercantile Insurance. It controls a 1.09 per cent market share in the general insurance business and 0.5 per cent in life insurance.
The deep-pocketed parent company has given assurances of its support to the Kenyan unit if needed, especially with the expected review of capital requirements in the insurance sector.