Johannesburg, 02 Dec 2014 — Global Credit Ratings has today assigned a national scale claims paying ability rating to L’Africaine des Assurances Limited of A(BJ); with the outlook accorded as Stable. The rating is valid until 11/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to L’Africaine des Assurances Limited (“AA Benin”) based on the following key criteria:
AA Benin is the leading domestic non-life insurer in the Benin market, supported by a well-entrenched brand and diversified distribution networks. GCR expects the insurer’s competitive strength to persist, albeit with pressures on gross premium growth stemming from other players in the industry gaining traction.
Capitalisation is viewed to be strong, and a core contributor to AA Benin’s rating. Capitalisation has strengthened over the review period, following a capital injection of XOF1bn in F13, coupled with a relatively sound level of retained income. As a result, the international solvency margin increased to 126% in F13 (F12: 92%). GCR’s view of capital accumulation is partially offset by the low level of dividend cover displayed in recent years, with continued declarations envisaged going forward. GCR expects the insurer to remain adequately capitalised relative to the rating over the outlook horizon, with sufficient funding available for the expansionary plan envisaged.
Liquidity metrics have remained strong over the review period, supported by the moderately conservative investment strategy. Claims cash coverage remained strong at 32 months at FYE13 (FYE12: 33 months), in line with the review period average. Similarly, cash covered net technical liabilities by 0.8x at FYE13, with fixed income instruments offering additional liquidity support. Cognisance is taken of the conservative Conférence Interafricaine des Marchés d’Assurances (“CIMA”) technical reserving requirements. Going forward, GCR expects liquidity metrics to remain at sound levels.
The insurer has registered net underwriting losses for three consecutive years (average margin: -7%), largely due to an elevated cost base and increasing claims experience. Sound investment income has helped AA Benin achieve net profitability over the review period. As such, GCR views overall earnings capacity to be sustainable at a moderately strong level going forward.
The reinsurance programme structure introduces a moderate degree of counterparty concentration and credit risk. Cognisance is, however, taken of the credit quality of the underlying reinsurers in the Globus Re reinsurance programme and the fact that the company retains no risk for its own account.
The CIMA code imposes investment restrictions limiting the investment asset classes and diversification available in the region. Nevertheless, AA Benin’s asset quality has been measured at sound levels, given the moderately high level of liquid assets in the investment portfolio.
The rating may be upgraded if the insurer registers sustained underwriting profitability, in conjunction with the maintenance of strong risk-adjusted capitalisation and improved liquidity metrics. Conversely, the rating may be negatively impacted by a weakening in competitive positioning, and/or a sustained track record of underwriting deficits and a weakening in risk adjusted capitalisation.
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NATIONAL SCALE RATINGS HISTORY
Initial/last rating (Nov/2014)
Claims paying ability: A(BJ)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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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.
L’Africaine des Assurances 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 has been disclosed to L’Africaine des Assurances Limited with no contestation of the rating.
The information received from L’Africaine des Assurances Limited and other reliable third parties to accord the credit rating(s) included the latest available audited annual financial statements for 2013 (plus four years of comparative numbers), full year detailed budgeted financial statements for 2014, most recent year to date management accounts up to September 2014, the current year reinsurance cover notes, and other related documents.
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.
GCR accords an initial rating of A(BJ) to L’Africaine des Assurances Limited; Outlook Stable.