Johannesburg, 18 Dec 2013 — Global Credit Ratings has today assigned an initial national scale claims paying ability rating of AA-(MU) to Swan Insurance Company Limited; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has assigned an initial international scale claims paying ability rating of BBB to Swan Insurance Company Limited; with the outlook accorded as Stable. The rating(s) are valid until 9/2014.
Global Credit Ratings has accorded the above credit rating(s) on Swan Insurance Company Limited based on the following key criteria:
Swan Insurance Company Limited (“Swan”) is the market leader in the Mauritian short term insurance market, with a strong brand and established market presence. Accordingly, competitive positioning is viewed as a key rating strength that is expected to be sustained over the medium term. Capital adequacy is viewed as strong relative to Swan’s risk profile, and supportive of the insurer’s short to medium term strategy. A well contained technical result and conservative net deductible limit the potential adverse impact of insurance risk on capital erosion. This notwithstanding, the insurer is viewed to follow a fairly aggressive asset allocation policy, giving rise to a high level of market risk exposure. While strong solvency metrics indicate an ability to absorb market losses, sustained depression in market prices may result in the insurer’s capital profile weakening.
Furthermore, Swan’s medium term operational strategy centres on diversification by way of both geographic spread and business type, facilitated by privately held insurance and finance related assets. While GCR recognises the strategic value of these investments, and the potential for medium term realisation of business spread, they do imply a high degree of industry concentration risk, as well as execution and capital risk associated with start-up entities. Accordingly, the strength of management’s strategic implementation represents a key rating consideration through this expansionary cycle.
Swan exhibits an adequate liquidity profile relative to regional norms and operational requirements. Asset liability matching is also viewed to be appropriately managed. Swan’s track record of profitability, which has been a function of containment of both claims and delivery costs, demonstrates the insurer’s ability to achieve and sustain very strong earnings streams, with internal capital generation supported by a disciplined dividend history.
Swan’s reinsurance programme utilises counterparties of high credit quality, with the vast majority reflecting secure ratings on an international scale. Additionally, maximum net deductibles per risk and event are limited to levels that are viewed as conservative relative to both premiums (limiting earnings volatility) and capital (moderating exposure). The international scale rating incorporates the impact of Mauritius’ sovereign rating of BBB+ (applicable to both local and foreign currency ratings).
Upward movement of the rating or outlook could develop should the insurer’s liquidity metrics strengthen materially, in particular cash coverage of technical liabilities. A reduction in exposure to market risk would contribute positively to balance sheet strength, while the successful bedding down of start-up subsidiaries’ operations represents a key rating consideration over the short to medium term. Downward rating pressure would emanate from a substantial and sustainable weakening in solvency and liquidity metrics to levels outside of GCR’s parameters for the current band. A material loss of market share, or deterioration in earnings capacity, may also give rise to negative ratings pressure.
|Regional Sector Head: Insurance|
|+27 11 784 1771|
|Sector Head: Financial Institution Ratings|
|+27 11 784 1771|
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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.
Swan Insurance Company Limited 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 Swan Insurance Company Limited with no contestation of the rating.
The information received from Swan Insurance Company Limited and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements, unaudited year to date management accounts to June 2013, the current year reinsurance cover notes, investment guidelines, debtors provisioning overviews, corporate governance framework, reserving overviews, statutory annual returns, statutory solvency returns, and other related rating information.
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.