Announcements Insurance Rating Alerts

Forte Insurance assigned an international scale rating of B, and Cambodian national scale rating of AA(KH); Outlooks Stable

Rating Action

Johannesburg, 19 May 2020 – GCR Ratings (“GCR”) has assigned Forte Insurance (Cambodia) Plc (“Forte Insurance”) an international scale financial strength rating of B and a national scale financial strength rating of AA(KH). Both Outlooks are Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook
Forte Insurance (Cambodia) Plc Financial strength International B Stable Outlook
National AA(KH) Stable Outlook

Rating Rationale

The ratings reflect Forte Insurance’s strong business profile, incorporating subsidiaries; Forte-Toko Lao Assurance Co. Ltd (“Forte-Toko”) and Forte Life Assurance (Cambodia) Plc (“Forte Life”), which contribute around 6% of consolidated gross premiums. This is further supported by a solid financial position, including a recent capital injection from shareholders and sound cross cycle earnings.

The credit profile of Forte Insurance and its subsidiaries (“the group”) is framed by the operating environment, which exhibits exposure to high risk countries, of Cambodia and Laos, relative to global peers. This is exacerbated by low insurance penetration and limited regulatory rigor in the Cambodian insurance sector, which notwithstanding sound earnings and average premium growth, suppresses the operating environment.

The group’s business profile is moderately strong, supported by a consistently strong market position and well diversified premium sources. Forte Insurance registered a market share of 44% in the short term industry and a corresponding relative market share of 3x in FY19, while premium diversification was broadened by the acquisition of Forte Life, which specialises in life and health lines. Going forward, there is potential for the business profile to strengthen over the medium term, should Forte-Toko garner sufficient scale to consolidate the group’s geographic spread.

Overall, the group’s financial profile is assessed to be strong, largely supported by a 2018 capital injection of USD3m and solid through the cycle internal capital generation from operations. Resultantly, the quality of the insurer’s relatively sizeable capital base improved, offsetting traditional risks, on the backdrop of conservative aggregate risk assumption. However, GCR remains concerned with elevated exposures to related party transactions, which moderates the capitalisation assessment over the short term.

Positively, strong earnings generation is expected to support the financial profile through diluting foregoing risks over the medium term. The core operating entity registered review period average underwriting margin and return on revenue of 20% and 13%, respectively, with possible dilution by group subsidiaries on consolidation likely to be limited by their modest contribution to group earnings. While note is taken of reduced earnings performance in FY19, due to the elevated frequency of sizeable medical claims and the impairment of an unlisted investment, comfort is derived from the repricing of the non-performing medical risks and the non-recurring nature of the impairment. In this respect, GCR expects earnings to maintain exhibited through the cycle strength, with the view supported by strong 1Q F20 profit margins, exceeding prior year comparatives. Although risks to earnings performance presented by the COVID-19 pandemic remain for the remainder of the year, GCR’s base case scenario anticipates the impact to be mild and recoverable over the medium term, given the assumption that related risks were concentrated to the first quarter in Asia.

In line with the foregoing drivers, liquidity soundly covered net technical reserves and operational cash coverage by around 2x and above 12 months, respectively, supported by well embedded conservative asset allocation and strong cash generation from operations through the cycle. GCR expects liquidity metrics to tolerate short term pressures in line with base case projections on earnings.

Outlook Statement

The Stable Outlook reflects expectations of an unchanged business profile and a relatively stable financial profile, while higher than expected improvements in the business profile could be offset by a corresponding moderation in the financial profile through possible solvency and liquidity dilution. GCR’s base case scenario on earnings anticipates a mild impact that leaves the financial profile rating adequate.

Rating triggers

Positive rating action is unlikely over the short term. However, an improvement in the ratings over the medium term could result from further consolidation of group operations that positively impacts the credit profile, including an improvement in geographic spread. Conversely, downward rating pressure could arise from earnings dilution, should earnings measure below GCR’s base line projections and impact credit protection metrics beyond expectations.

Analytical Contacts

Primary analyst Godfrey Chingono Deputy Sector Head: Insurance Ratings
Johannesburg, ZA GodfreyC@GCRratings.com +27 11 784 1771
Committee chair 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, May 2020
GCR Insurance Sector Risk Scores, May 2020

Ratings History

Rating class Review Rating Scale Rating Outlook Date
Financial Strength Initial/Last International B Stable May 2020
Financial Strength Initial/Last National AA(KH) Stable May 2020

Risk Score Summary

Risk scores Forte Insurance
Operating environment 7.50
Country risk score 4.50
Sector risk score 3.00
Business profile 0.75
Competitive position 1.25
Premium diversification (0.50)
Management and governance 0.00
Financial profile 3.50
Earnings 1.00
Capitalisation 1.50
Liquidity 1.00
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 11.75

Glossary

Premium The price of insurance protection for a specified risk for a specified period of time.
Primary Market The part of the capital markets that deals with the issuance of new securities.
Quota Share The basic form of participating treaty whereby the reinsurer accepts a stated percentage of each and every risk within a defined category of business on a pro rata basis. Participation in each risk is fixed and certain.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Receivables Any outstanding debts, current or not, due to be paid to a company in cash.
Reinsurance The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
Reserve (1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.
Reserves A portion of funds allocated for an eventuality.
Retrocession The transaction whereby a reinsurer cedes to another reinsurer all or part of the reinsurance it has previously assumed.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Senior A security that has a higher repayment priority than junior securities.
Short Term Current; ordinarily less than one year.
Solvency With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.
Spread The interest rate that is paid in addition to the reference rate for debt securities.
Technical Liabilities The sum of Net UPR and Net OCR IBNR.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
Underwriting The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.

For a detailed glossary of terms utilized in this announcement please click here

Salient Points of Accorded Rating

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to Forte Insurance (Cambodia) Plc. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

Forte Insurance (Cambodia) Plc participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Forte Insurance (Cambodia) Plc and other reliable third parties to accord the credit rating included:

  • Company audited financial statements to 31 December 2019;
  • Forte Micro-Insurance Plc audited financial statements to 31 December 2018;
  • Tokojaya Lao Assurance Co. Ltd audited financial statements to 31 December 2018;
  • Four years of company comparative audited financial statements to 31 December;
  • Company management accounts to March 2020;
  • Full year company budgeted financial statements to December 2020;
  • Reinsurance cover notes for 2019; and
  • Other relevant documents.


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