Johannesburg, 19 September 2018 — Global Credit Ratings has today assigned an initial national scale claims paying ability rating to Radiant Insurance Company Limited of A-(RW), with the outlook accorded as Stable. The rating is valid until September 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Radiant Insurance Company Limited (“Radiant Insurance”) based on the following key criteria:
Radiant Insurance is a private insurer established in Rwanda since 2013, focused on writing an array of short term products. The insurer was accorded the initial national claims paying ability rating of A-(RW) based on its strong domestic business profile and asset quality. These strengths are however offset by intermediate risk adjusted capitalisation and liquidity, as well as moderately weak earnings capacity.
The insurer reflects a strong domestic business profile, being a function of sound competitive position and earnings profile. Radiant Insurance is one of the leading players in the local short-term industry, registering a stable market share of 17.3% over the past two years, despite increased competition in government and corporate segments from newly established insurers and international insurance brands. Market share resilience was largely a product of an extensive and efficient network of tied agencies and could be sustained by plans to increase participation in the retail space. In this regard, motor and accident lines are expected to continue contributing at least 69% of gross premiums collectively, offsetting a possible increase in aggregate product risk from planned growth in guarantee business.
Asset quality improved to strong levels in FY17 as the insurer moved funds from listed equities to long term government bonds. However, note is taken of high reinsurance receivables accounting for 53% of capital in FY17 (FY16: 20%) and potential for projected additional investments in property to moderate the rating factor assessment over the medium term.
Risk adjusted capitalisation measured within an intermediate range, improving from moderately weak levels registered at the beginning of the five-years period. The sound capital growth (4-year CAGR of 45%) was driven by successive capital injections (RWF1.7bn) and incremental internal capital generation (RWF1.9bn) over the five-years period. This catered for slower growth in underwriting risk, given a relatively high historical level, with the international solvency margin registering at 55% at FY17 (FY16: 44%, FY13: 42%). In this respect, risk adjusted capitalisation may improve to a sound range over the outlook horizon, although contingent upon the implementation of stringent debtor management practices, conservative asset allocation and prudent dividend payments. Furthermore, the maximum net deductible per risk was maintained at a conservative level relative to capital, while the reinsurance panel reflects a strong aggregate level of credit strength.
Liquidity metrics remained at intermediate levels over the review period, reflecting the moderation of high liquidity metrics by funds placed in unrated financial institutions. Coverage of net technical liabilities, including government securities, equated to 1.4x (FY16: 1.2x; FY15: 0.9x), albeit with single largest banking counterparty exposure viewed to be high, at 41% of bank deposits. GCR expects liquidity to remain within a similar range, supported by sound cash flow generation, albeit sensitive to shifts in asset allocation. In this regard, projected additional investments in property could moderate asset quality over the medium term.
Earnings capacity is moderately weak suppressed by persistent underwriting losses, partially offsetting sound investment income. Weak underwriting performance is largely due to an elevated net incurred loss ratio (review period average: 67%; industry average: 70%), while management’s pursuit of sound investment returns produced a ROaE (including unrealized losses) of 21% in FY17 (FY16: 17%). Note is taken of industry-wide efforts to manage the loss ratio in select lines through coordinated premium rates increases and setting supportive claiming benchmarks. In GCR’s view, the successful implementation of proposed industry measures could reduce underwriting losses and underpin an improvement in earnings capacity over the medium term.
Upward rating movements may arise from a strengthening in earnings capacity over the medium term. This should be supported by sustained strength in liquidity and solvency metrics. Conversely, downward rating pressures may result from higher than expected dividends which adversely impact on liquidity and risk adjusted capitalisation.
|NATIONAL SCALE RATINGS HISTORY|
|Initial/last rating (September 2018)|
|Claims paying ability: A-(RW)|
|Primary Analyst||Secondary Analyst|
|Godfrey Chingono||Fleur NGASSA|
|Senior Credit Analyst||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
Criteria for Rating Newly Established and Start Up Companies, updated May 2018
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
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.
Radiant Insurance Company Limited participated in the rating process via face-to-face management meetings, teleconferences and/or other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to Radiant Insurance Company Limited.
The information received from Radiant Insurance Company Limited and other reliable third parties to accord the credit rating included:
- The audited annual financial statements to 31 December 2017
- Four years of comparative numbers
- Unaudited interim results as per 30 June 2018
- Budgeted financial statements for 2018
- Current reinsurance cover notes
- Other related documents.
The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capitalisation||The provision of capital for a company, or the conversion of income or assets into capital.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its risks.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|International Scale Rating (“ISR”)||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liquidity||The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period, usually spanning a time of twelve to eighteen months.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|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.|
|Statutory||Required by or having to do with law or statute.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a detailed glossary of terms, please click here
GCR accords an initial rating of A-(RW) to Radiant Insurance Company Limited; Stable Outlook.