Activa Assurance Limited’s (“Activa”) national scale FCFA claims paying ability rating was downgraded from A (single A) to A- (single A minus). The rating action was taken in consideration of the pending CIMA regulation concerning premium debtors, with its enforcement likely to impact adversely on the company’s medium term financial stability, with a large quantum of current debtor balances likely to be written off. As such, assuming a best case scenario (with debtors over 365 days deemed irrecoverable), FYE10 capital would reduce by a significant 45% to FCFA1.9bn, translating into an international solvency margin of 26%, a level which does not support the previous rating symbol of single A.
In an effort to soften the detrimental impact of the implementation of CIMA’s new premium debtor regulation, management is currently actively engaging with all relevant parties and has implemented various corrective measures, including regular client visits and detailed payment arrangements with brokers. The impact of these corrective measures, however, is not quantifiable.
A further concern remains the high concentration of illiquid assets in the insurer’s investment portfolio, with property and unlisted equities combined accounting for a high 55% of invested assets (or 2x the insurer’s FYE10 capital base), which implies significant investment and liquidity risk. Furthermore, the portfolio only generates marginal returns, whilst liquidity metrics remain subdued. In addition, cognisance was taken of the insurer’s decision to cede the majority of its treaty business (70%) in 2011 to newly established Globus Re. Risk is, however, somewhat mitigated by the high credit quality of underlying counterparties.
Positively, Activa has consistently improved its underwriting profitability over the review period, with the underwriting margin peaking at a robust 15% in F10. Moreover, the company’s position as the 3rd largest insurer in the Cameroon non-life insurance market was favourably viewed. Its market position is further strengthened by its membership in one of the largest insurance networks in West Africa, providing added brand leverage and a suitable growth framework.
Benjamin Schmidt https://globalratings.net/uploads/files/September_2011.pdf
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