Johannesburg, 30 March 2017 — Global Credit Ratings assigned a national scale claims paying ability rating to Nouvelle Compagnie Africaine de Reassurances of BBB-(CI), with the Outlook accorded as Stable. Furthermore, Global Credit Ratings assigned an international scale rating of B to Nouvelle Compagnie Africaine de Reassurances, with the Outlook accorded as Stable. The ratings are valid until November 2017.
The credit analysis of Nouvelle Compagnie Africaine de Reassurances was completed in November 2016, with the ratings being published today.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Nouvelle Compagnie Africaine de Reassurances (“NCA Re”) based on the following key criteria:
NCA Re reflects very strong liquidity, representing a key rating strength. This is mainly a function of a conservative investment strategy geared towards liquid assets in formative years. Accordingly, cash covered average monthly claims and technical liabilities by a robust 46 months (FY14: 17 months) and 1.4x (FY14: 1x) at FY15 respectively. While liquidity metrics are expected to remain within a strong range over the rating horizon, note is taken of the high potential for elevated dividend extraction (average payout: 57%) to erode cash balances over the medium term.
Earnings capacity is viewed to be moderate. The sound underwriting margin (FY15: 9%; FY14: 7%) has primarily been a function of a well contained loss ratio over the past two years. Underwriting margins are expected to measure at moderately strong levels over the rating horizon, albeit lowering (BGT16: 6%) due to an expected rise in the loss ratio. Note is taken, however, of the potential for premium volume fluctuations (resulting in possible delays in harnessing scale efficiencies to desired levels) and loss ratio volatility to negatively affect the achievement of short term profit targets.
Risk adjusted capitalisation is viewed to be limited, owing to a high quantum of aged premium debtors. In this regard, the international solvency margin lowers from 86% to a limited 33% at FY15 after adjusting capital for premium debtors in excess of 180 days. Barring measures to inject capital and/or substantially reduce aged premium debtors, the reinsurer’s risk adjusted capitalisation is expected to remain under pressure. This is a key rating consideration going forward.
NCA Re evidences a sound level of premium scale (FY15: XOF13.3bn gross premium) given the entity’s start-up nature, facilitating a fairly diversified mix of low risk products. Property risks account for 52% of revenue, representing the primary product. Going forward, earnings diversification is expected to be enhanced by an accelerated premium growth rate (BGT16: 13%; BGT17: 20%), targeting new products and markets.
The retrocession programme is largely placed with multiple reinsurers of intermediate aggregate credit strength, with maximum exposure per risk and event measuring at a conservative 1% of FY15 capital.
An upward movement of the rating may emanate from improved earnings capacity, coupled with strengthened risk adjusted capitalisation. Conversely, an increase in debtors (especially debtors aged above 180 days) and dividend pay-outs, which results in a sustained reduction in liquidity and capitalisation, could result in negative rating action.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial/ last rating (March 2017)||Initial/last rating (March 2017)|
|Claims paying ability: BBB-(CI)||Claims paying ability: B|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Committee Chairperson|
|Godfrey Chingono||Marc Chadwick|
|Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Criteria for rating Newly Established and Start-Up Insurance Companies, updated July 2016
Nouvelle Compagnie Africaine de Reassurances rating report, 2016
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 ratings was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Nouvelle Compagnie Africaine de Reassurances 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 ratings have been disclosed to Nouvelle Compagnie Africaine de Reassurances with no contestation of the ratings.
The information received from Nouvelle Compagnie Africaine de Reassurances and other reliable third parties to accord the credit ratings included:
- Audited financial results to 31 December 2015
- Four years of comparative audited numbers
- Budgeted financial statements for 2016
- The current year retrocession cover notes, 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.
|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|
|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 BBB-(CI) to Nouvelle Compagnie Africaine de Reassurances; Outlook Stable.