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Risk adjusted capitalisation represents a key rating strength. The entity exhibited improvements in capital adequacy over the review period driven by a healthy internal capital generation. The FY20 GCR Capital Adequacy Ratio (“CAR”) was further bolstered by a reduction in counterparty risk and underwriting risk exposures amid the COVID 19 pandemic, resulting in an improvement to 3.1x. The statutory CAR also registered improvements to 333% (FY19: 310%). Going forward, risk adjusted capitalisation is expected to remain above 3x, with potential for ongoing support from better earnings management and limited counterparty risk.
The Stable Outlook reflects expectations that the credit profile of AIG Kenya will be maintained, with the GCR CAR expected to register above 3x in the near-term. Cash and stressed assets coverage on technical liabilities is likely to continue measuring between 2.5x-2.9x, while asset allocation remains weighted towards short-term assets and government bonds. The national scale financial strength rating is at its ceiling. Negative rating action may ensue if earnings reduce below expected levels or the entity displays weaker competitive position, registering a relative market share of below 0.8x.