Johannesburg, 14 September 2018 — Global Credit Ratings has assigned an initial national scale claims paying ability rating to NSIA Insurance Company Limited of BBB+(GH), with the outlook accorded as Stable. The rating is valid until August 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to NSIA Insurance Company Limited (“NSIA Insurance”) based on the following key criteria:
NSIA Insurance is a majority owned subsidiary of NSIA Participations (“Groupe NSIA”), a large international company with footprints in 12 francophone countries and 26 subsidiaries. The group is headquartered in Ivory Coast and has interests in insurance, banking and finance, real estate and technology. The establishment of NSIA Insurance followed a major acquisition of more than an 80% stake in CDH Insurance by the group in 2010. The insurer is licensed to transact short term insurance business.
The insurer reflects strong risk adjusted capitalisation, underpinned by capital injections from existing shareholders, coupled with very limited exposure to market and credit risk. Resultantly, the international solvency margin equated to a high 221% at FY17 (FY16: 217%; review period average: 157%), while statutory solvency was maintained at very high levels, amounting to 788% (FY16: 616%). Furthermore, maximum deductibles per risk and per event are set conservatively at 0.2% of FY17 capital, while the reinsurance panel reflects strong counterparty strength.
Asset quality is viewed to be very strong, underpinned by a sizable investment portfolio, with the majority of assets invested conservatively. In this respect, liquid assets amounted to GHS31m at FY17 (FY16: GHS29m), constituting 108% of capital (FY16: 124%). In light of management’s view to maintain the current asset allocation policy, asset quality is expected to remain very strong over the rating horizon.
Accordingly, liquidity is assessed within a very strong range, with cash covering net technical obligations by 4.3x at FY17 (FY16: 4.8x), while cash coverage of average monthly claims equated to 112 months (FY16: 156 months). Looking ahead, liquidity strength is likely to be sustained over the rating horizon.
Earnings capacity registered within a moderately weak range over the last three years, largely underpinned by continued underwriting deficits partially offsetting improved investment returns. In this regard, the three year underwriting margin equated to -49% (FY17: -43%), while the operating margin averaged 21% over the corresponding period. Moderately weak underwriting performance was largely a function of the insurer’s limited scale to absorb a relatively elevated cost base. In GCR’s view, underwriting profit weakness is likely to persist over the rating horizon, given the potential for operating cost pressures to be sustained in line with targeted growth projections. Accordingly, earnings capacity is likely to remain at moderately weak levels.
The business profile is considered moderately weak, and is projected to measure at a similar level over the rating horizon. Mirroring the industry product composition, NSIA Insurance’s business mix manifests a high degree of single product concentration. In this respect, the primary portfolio, motor, accounted for 60% (69%) of the gross (net) premium base in FY17 (FY16: 61% and 74% respectively). Furthermore, the insurer’s market share remained modest at 1.4% at FY17 (FY16: 1.3%) notwithstanding strong growth realised during the review year. Management plans to grow market share through intensifying advertising and brand awareness efforts, widening distribution channels and deepening existing relationships with brokers and agencies.
Upward rating movement could follow a sustained improvement in earnings capacity and competitive position, while risk adjusted capitalisation and liquidity metrics are maintained at strong levels. Conversely, negative rating action sensitivities relate to persistently weak earnings capacity should this adversely impact on other credit protection metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial / last rating (September 2018)|
|Claims paying ability: BBB+(GH)|
|Primary Analyst||Committee Chairperson|
|Tichaona Nyakudya||Susan Hawthorne|
|Credit Analyst||Senior Credit Analyst|
|(011) 784 – 1771||(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance 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/RATING-SCALES-DEFINITIONS. 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 process 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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
NSIA 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 has been disclosed to NSIA Insurance Company Limited and was amended following an appeal.
The information received from NSIA Insurance Company Limited and other reliable third parties to accord the credit rating included:
- Audited financial statements to 31 December 2017
- Four years of comparative audited financial statements
- Management accounts to 31 March 2018
- Budgeted financial statements for 2018
- Financial condition report for 2017
- Reinsurance cover notes for 2018
- 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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Balance Sheet||Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|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.|
|Deductible||The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|Execution Risk||The risk that a company’s business plans will not be successful when they are put into action.|
|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 LC||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.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|Operating Margin||Measures the efficiency of profit generation from investments and underwriting.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.|
|Policyholder||The person in actual possession of an insurance policy.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|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.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Yield||Percentage return on an investment or security, usually calculated at an annual rate.|
For a detailed glossary of terms, please click here.
GCR accords an initial rating of BBB+(GH) to NSIA Insurance Company Limited; Outlook Stable.