Johannesburg, 31 Oct 2014 — Global Credit Ratings has today assigned a national scale claims paying ability rating to Activa International Insurance Company Limited (Ghana) of A-(GH); with the outlook accorded as Stable. The rating(s) are valid until August 2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Activa International Insurance Company Limited (Ghana) (“Activa Ghana”) based on the following key criteria:
Activa Ghana evidences a moderately strong level of capitalisation, which upholds the insurer’s rating. In this regard, the international solvency margin equated to 106% in F13, with solvency expected to remain relatively strong in F14 (supporting the insurer’s increased net premium retention strategy). On a risk adjusted basis, capital adequacy is supported by the low level of market risk arising out of the conservative investment portfolio. Additionally, Activa Ghana’s conservative asset allocation strategy has facilitated strong liquidity metrics over the bulk of the review period, with average technical provision coverage exceeding 1x. GCR expects liquidity strength to persist going forward, supporting the rating.
The rating reflects GCR’s view of Activa Ghana’s improving earnings capacity. In this regard, the insurer has registered consecutive underwriting surpluses over the past two years (F13 underwriting margin: 23%), with the insurer forecasting sustained underwriting profitability over the rating horizon. Note is taken of the high level of underwriting volatility exhibited over a sustained period, however, which has been a function of both loss ratio fluctuations, as well as a relatively elevated delivery cost base.
Activa Ghana’s relationship with its parent company Activa Cameroon, as well as its membership in the Globus Network (one of Africa’s largest insurance networks), were favourably viewed. This should increase franchise value and provide added brand leverage in the medium term.
The reinsurance programme structure introduces a considerable degree of counterparty concentration and credit risk. Cognisance was, however, taken of the high credit quality of the underlying reinsurers in the Globus Re reinsurance programme and the fact that Globus Re retains no risk for its own account. Additionally, the large quantum of reinsurance commission receivables gives rise to sizeable counterparty exposure, which partially impacts on our view of asset quality.
A demonstrated track record of consistent underwriting profitability and stability, increased market share, and an improvement in risk-adjusted capitalisation, may allow for upward rating movement over the medium term. A downgrade may arise if a sustained deterioration in the operating performance is evidenced; if the solvency margin falls below risk-adjusted metrics supporting the rating; and/or if liquidity were to weaken materially.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (Aug/2014)
Claims paying ability: A-(GH)
Last rating (Aug/2014)
Claims paying ability: A-(GH)
Sector Head: Insurance
Senior Analyst: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies, July 2014
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SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Activa International Insurance Company Limited (Ghana) participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Activa International Insurance Company Limited (Ghana) with no contestation of the rating.
The information received from Activa International Insurance Company Limited (Ghana) and other reliable third parties to accord the credit rating(s) included the 2013 audited annual financial statements (plus four years of comparative numbers), latest Internal and/or external report to management, full year detailed budgeted financial statements, year to date management accounts to September 2014, the 2014 reinsurance cover notes, and other documentation related to the rating exercise.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
GCR accords an initial rating of A-(GH) to Activa Ghana; Outlook Stable.