Johannesburg, 14 March 2016 — Global Credit Ratings has today assigned a national scale claims paying ability rating to CBZ Insurance (Private) Limited of BBB(ZW), with the outlook accorded as Positive. The rating is valid until September 2016.
The rating exercise was performed in September 2015, with the public results only released today.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to CBZ Insurance (Private) Limited (“CBZ Insurance”) based on the following key criteria:
Earnings capacity is viewed to be strong, with CBZ Insurance registering consecutive underwriting surpluses throughout the review period. The insurer has registered cumulative underwriting profits of USD1.7m, translating into a strong average underwriting margin of 13%. This has been facilitated by a contained claims experience, which is expected to persist going forward.
CBZ Insurance evidences strengthened and healthy liquidity metrics, representing a rating strength. In FY14, the insurer benefitted from cash generated from operations, resulting in a total cash balance of USD2.9m (FYE13: USD1.0m). As such, cash claims cover was registered at 20 months, while cash cover of technical liabilities was recorded at 1.2x. Liquidity strength is budgeted to continue going forward, given operational cash flow generation coupled with a low risk asset allocation strategy. The latter has translated into limited market risk, with cash and equivalents representing 88% of total investments at FYE14 (FYE13:70%). Given the short term nature of the insurer’s obligations, this investment stance is viewed positively.
CBZ Insurance’s capitalisation is viewed to be intermediate. The international solvency margin was stable at 46% at FYE14, and is expected to remain between 45% and 50% over the medium term. Risk adjusted capitalisation is supported by the limited market risk carried in the investment portfolio, while growth in underwriting risk is well matched by capital generation.
CBZ Insurance has an intermediate competitive position. The insurer registered a market share of 4% in FY14, with gross premiums aligned with the industry average. This market position is supported by brand recognition, given the alignment with the CBZ banking group.
Reinsurance protection is placed with counterparties carrying moderately strong aggregated national scale credit strength. Maximum net retention per risk and event corresponds to a conservative 1% of FYE14 capital. GCR’s view of reserving sufficiency is positively impacted by the certification of reserve levels by a qualified actuary.
GCR views country risk factors to be elevated, and a systematic rating consideration applicable to insurers. Operational challenges are likely to persist given the uncertain socio-political outlook, severe liquidity strain, reduction in banking sector stability and weak macroeconomic fundamentals.
Upward movement on the rating could develop on the back of improved scale and earnings diversification, coupled with sustained strength in liquidity and solvency metrics. Downward movement of the rating could develop on the back of deterioration in key credit protection measures, a weakened underwriting performance and/or the adoption of a more aggressive investment strategy. Should the economic or socio-political outlook deteriorate further, the rating ceiling of the insurance sector may be reviewed.
|NATIONAL SCALE RATINGS HISTORY|
|Initial/ Last rating (March 2016)|
|Claims paying ability: BBB(ZW)|
|Primary analyst||Secondary Analyst|
|Marc Chadwick||Kudzai Siwawa|
|Sector Head: Insurance Ratings||Credit Analyst|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
CBZ Insurance (Private) Limited rating report 2015
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 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.
CBZ Insurance (Private) 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 CBZ Insurance (Private) Limited with no contestation of the rating.
The information received from CBZ Insurance (Private) Limited and other reliable third parties to accord the credit rating included:
- The audited annual financial statements to December 2014
- 4 years of comparative audited numbers
- Unaudited year to date results to 30 April 2015
- Budgeted financial statements to December 2015
- 2015 reinsurance cover notes
- 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.
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.|
For a detailed glossary of terms please click here
GCR accords an initial rating to CBZ Insurance (Private) Limited of BBB(ZW); Outlook Positive.