Johannesburg, 10 April 2015 — Global Credit Ratings has today accorded an initial national scale claims paying ability rating to International Commercial & Engineering Seguros of BBB+(MZ), with the rating outlook accorded as “Stable”. The rating is valid until 04/2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to International Commercial & Engineering Seguros (“ICE”) based on the following key criteria:
ICE is a start-up insurance company recently registered in Mozambique. ICE’s business model centres on the establishment of a specialised corporate property and engineering product offering in the Mozambican short term insurance space. Low prevailing barriers to entry and attractive market growth prospects support GCR’s view of scope for achieving meaningful market penetration over the next three years.
Financial projections entailed in the insurer’s business plan indicate potential for the attainment of underwriting profitability within 24 months after inception, supported by sharp growth acceleration and sizeable reinsurance commission recoveries.
GCR has identified an array of strengths within the business structure, which collectively are viewed to support the insurer’s competitive profile and partially mitigate execution risk. Amongst others, this includes the utilisation of a sophisticated, field-tested IT platform (allowing for an integration of underwriting, claims processing and capital management), and group technical support (covering reinsurance, financial and administrative disciplines). In addition, the insurer benefits from a highly experienced management team, which boasts a demonstrated track record of successfully driving start-up insurance ventures across Africa.
Capitalisation is viewed as a rating weakness in the context of the large scale risks pursued, with a considerable degree of solvency strain anticipated in the first year of operations (on the back of a US$1.2m retained net loss). Indicative of this, statutory solvency compliance is to be attained at a notably thin buffer, whilst the international solvency will remain subdued at around the 50% mark in F15. However, realisable reinsurance cost savings reflect potential for capital uplift, which provides some degree of risk mitigation.
Reinsurance protection is considered integral in the context of ICE’s proposed business strategy. In this regard, the high level of credit strength displayed by most reinsurance partners serves to alleviate capital risk. However, the treaty net deductible per risk is considered moderately elevated relative to FYE15 capital (at 7.7%). Positively, a very conservative investment strategy is expected to be deployed, with invested assets to be held exclusively in cash instruments. This is supportive of strong liquidity metrics over the rating horizon.
The successful execution of the business strategy is viewed as a key consideration, with particular emphasis to be placed on the bedding down of operational structures, the demonstrated ability to attain medium term revenue milestones and the development of an earnings generation track record. Further, a protracted upward management of key solvency metrics is required. Conversely, downward rating pressure could stem from failure to execute the business strategy, characterised by considerable revenue budget shortfalls and protracted pressure on key claims and other operating ratios, thus impacting adversely on earnings generation and placing strain on solvency.
NATIONAL SCALE RATINGS HISTORY
Initial/Last rating (Apr/2015)
Claims paying ability: BBB+(MZ)
Senior Analyst: Insurance
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014
Criteria for Rating Newly Established and Start-up Insurance Companies, updated July 2014
For a detailed glossary of terms utilised in this announcement please click here
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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.
International Commercial & Engineering Seguros 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 International Commercial & Engineering Seguros with no contestation of the rating.
The information received from International Commercial & Engineering Seguros and other reliable third parties to accord the credit rating(s) included detailed financial projections for the next three years to 2017, a comprehensive business plan, reinsurance cover notes for 2015, as well as other non-public, rating-relevant 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.
GCR accords International Commercial & Engineering Seguros a rating of BBB+(MZ); Outlook Stable