Johannesburg, 18 May 2015 — Global Credit Ratings has today assigned an initial national scale claims paying ability rating to Genric Insurance Company Limited of A-(ZA); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Genric Insurance Company Limited (“Genric”) based on the following key criteria:
Genric’s capitalisation is viewed to be supportive of the rating. Risk-adjusted capital adequacy is supported by contained insurance risk, limited market exposure, and a lowering level of aggregate sums insured. GCR’s view of capitalisation is enhanced by the recent capital injections undertaken by shareholders, coupled with an approach to supplement existing balances to preserve risk-based capital sufficiency going forward as needed.
Genric reports a healthy liquidity position, underpinned by a large cash portfolio relative to claims and technical provisions. Cash coverage of net technical liabilities is projected to remain at very high levels going forward, while operational cash requirements are managed at comfortable levels.
Earnings capacity is viewed as strengthening, with the insurer’s medium term earnings potential expected to be supported by enhanced cost absorption capacity and an increasingly diversified earnings stream. Genric’s profit track record has been supported by thin but healthy profit margins in niche markets that are viewed to be supportive of competitive underwriting results relative to traditional multiline peers going forward.
GCR views the overlap between the risk profiles of the existing and new UMA portfolios to be limited, owing to the distinct underwriting cycles and pricing dynamics pertaining to each one. Accordingly, GCR views the insurer’s increased earnings diversification as a rating positive, provided that the new portfolios are managed to profitable growth. Strict monitoring of the underwriting and performance of new books of business is viewed to be integral to rating maintenance over the short and medium term.
Strategic assets represents a balance sheet exposure. In this regard, investments in strategic UMAs correspond to approximately 60% of FYE14 capital. This notwithstanding, the insurer plans to declare all profits from such investments as dividends going forward, which will serve to dilute the net asset value of such assets relative to capital and alleviate balance sheet exposure.
The insurer’s business profile is constrained by its limited market share. This is partially offset by the insurer’s comparatively healthy positions in the specialised areas of focus. GCR views Genric to operate in product segments that are less prone to pricing pressures than traditional commoditised markets. Furthermore, the insurer’s strong position in the specialised cash-in-transit line, and fairly good representation in the gap cover arena, act as a solid base around which the remainder of the business is being built.
Substantially improved market penetration, inclusive of the successful bedding down and profitable growth of new portfolios, coupled with sustained underwriting profitability in existing core business, may allow for upward rating movement over the medium term. This must be accompanied by the maintenance of capital adequacy and liquidity at very prudent levels. Conversely, given the material rating upliftment derived from strengths observed in key credit protection metrics, a high level of rating sensitivity exists with respect to a lowering in liquidity and capitalisation metrics. Further, a weakening in profitability away from forecast levels may have a negative rating impact, as may negative developments in new books of business.
For a detailed glossary of terms utilised in this announcement please click here
| NATIONAL SCALE RATINGS HISTORY |
| Initial / Last rating (May 2015) |
| Claims paying ability: A-(ZA) |
| Outlook: Stable |
ANALYTICAL CONTACTS
| Primary Analyst | Committee Chairperson | |
| Marc Chadwick | Sheri Few | |
| Sector Head: Insurance | Senior Analyst: Insurance | |
| (011) 784-1771 | (011) 784-1771 | |
| Chadwick@globalratings.net | Few@globalratings.net |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (updated July 2014)
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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
| Assets | The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’ |
| Balance Sheet | An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date. |
| Capacity | The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace. |
| Claim | A request for payment of a loss, which may come under the terms of an insurance contract. |
| Commission | A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers. |
| Insurer | The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public. |
| Interest | Money paid for the use of money. |
| Liquidity | The ability of an insurer to convert its assets into cash to pay claims if necessary. |
| Loss Ratio | The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves. |
| Policy | The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract. |
| Premium | The price of insurance protection for a specified risk for a specified period of time. |
| 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. |
| Reserve | An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. |
| Retention | The net amount of risk the ceding company keeps for its own account |
| Risk | Uncertainty as to the outcome of an event when two or more possibilities exist. |
| 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. |
| 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. |
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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Genric Insurance Company Limited participated in the rating process, via teleconferences and 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 Genric Insurance Company Limited with no contestation of the rating.
The information received from Genric Insurance Company Limited and other reliable third parties to accord the credit rating(s) included the latest audited annual financial statements to June 2014 (plus four years of audited comparative numbers), latest independent auditor’s report to shareholders for 2014, full year budgeted financial statements to June 2015, unaudited year to date management accounts to March 2015, the quantitative statutory return for 2014, and other related documents.
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-(ZA) to Genric Insurance Company Limited; Outlook Stable
