GCR has upgraded Botswana Insurance Company Limited’s (“BIC”) national scale claims paying ability rating from A+(BW) (single A plus) to AA-(BW) (double A minus). The rating outlook was set as “Stable”.
The rating upgrade was underpinned by the company’s favourable position as the market leader in the domestic insurance arena, supported by its strong brand value and technical expertise. In addition, bolstered by sound capital accumulation, key solvency metrics have consistently trended upwards in recent years, with a further strengthening anticipated going forward (supported by declining risk retention). Further, cognisance was taken of the conservative investment strategy applied (which is supportive of an adequate level of liquidity) and BIC’s demonstrated ability to generate robust underwriting profits over the review period, underpinned by fairly well contained (albeit somewhat volatile) claims trends.
An area of improvement, however, remains the company’s delivery cost base, which is considered elevated relative to its peers, with further cost reduction initiatives considered necessary going forward to sustain its sound margin levels. Further, the high reliance on a single intermediary (36% of GWP) in terms of business procurement and the elevated class concentration to motor on a net basis (58% of NWP) implies heightened operational risk. An additional challenge is the limited diversification of listed equities, as well as a fairly high single banking counterparty exposure (46% at FYE11, albeit secure rated), which is above GCR’s comfort level.
In view of the upgrade of the rating (with the current status constituting the strongest rating in the Botswana insurance market accorded by GCR), an upward adjustment of the rating in the short term is considered unlikely. In the medium to long term, an upgrade could arise from a strengthening of the insurer’s liquidity position, while maintaining solvency metrics at current levels. Further, improved diversification of the book and sources of business, while maintaining underwriting disciplines, would be positively viewed. A downgrade could arise from a persistent weakening in the underwriting performance over a prolonged period, thus compromising key solvency metrics. Further, the adoption of a more aggressive investment strategy, thereby notably impeding key liquidity, could impact adversely on the rating.
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