Announcements Research

COVID-19 pandemic risks likely to delay positive developments in Botswana’s short-term insurance industry

Summary

06 April 2020 – GCR Ratings (“GCR”) has published an industry research piece on the potential for ongoing credit positive economic and regulatory reforms in Botswana to positively impact the underperforming short term insurance sector, albeit with benefits expected to be realised over a longer than expected period due to COVID-19 related downside risks.

The update is available for download at: http://gcrresearch.com/reports/house/industry-reports/

Key highlights of the research are:

  • Botswana’s short-term insurance sector has not fully benefited from the fiscal strengths of government or the commodity strengths of its economy.
  • The sector has also registered stagnant revenue performance and pressurised underwriting performance over recent years. Furthermore, interest rates have plummeted to low levels after consecutive cuts in the Central Bank benchmark rate in 2017 and 2019, lowering investment income.
  • We believe government efforts to improve economic diversification will increase underwriting opportunities and insurance penetration over the longer term. Furthermore, the new Insurance Industry Act of 2015 (effective May 2019), and associated prudential rules could reduce ongoing rates pressure and lower earnings risk.
  • However, emergent downside risks from the COVID-19 pandemic are likely to depress global economic performance and commodity prices, ultimately resulting in weaker industry financial performance.
  • We therefore expect the potential positive impact of economic and regulatory reforms to be realised over a longer period than originally forecast.

GCR will periodically provide insights on key sectors/industries across different territories in which various rated entities are domiciled, encompassing changes in the operating environment, performance trends and its view of the impact of an evolution in market dynamics on the credit risk profiles of rated entities in selected industries.

Analytical Contacts

Analyst Godfrey Chingono Deputy Sector Head: Insurance Ratings
Johannesburg, ZA GodfreyC@GCRratings.com +27 11 784 1771
Analyst Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Insurance Companies, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, January 2020
GCR Insurance Sector Risk Scores, January 2020


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