Johannesburg, 27 Jul 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Activa Assurances Limited of A(CM), with the outlook accorded as Positive. The rating is valid until July 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Activa Assurances Limited (“Activa Cameroon”) based on the following key criteria:
The Positive Outlook reflects GCR’s view that Activa Cameroon is likely to continue to achieve through the cycle profitability, while maintaining liquidity metrics and risk adjusted capitalisation at strengthened levels.
Earnings capacity has been measured at robust levels, recording an average underwriting margin of 15% over the review period. Very strong profitability has been supported by a relatively competitive total expense ratio (FY14: 41%), as well as a lower average net incurred loss ratio over the last two years, given limited risk exposure to high severity losses borne by the net account. GCR expects the insurer to continue to achieve through the cycle net profitability over the rating horizon.
The insurer reflects strengthened liquidity metrics, with cash covering net technical reserves by a review period high of 0.9x at FYE14 (FYE13: 0.8x; FYE12: 0.6x). Inclusive of corporate bonds, cash coverage of net technical liabilities strengthens further to 1x at FYE14 (FYE13: 0.8x). Management is committed to maintaining liquidity measures at strengthened levels. In this regard, the insurer has established a minimum cash coverage of net technical reserves target of 1x going forward.
Activa Cameroon reflects strong risk adjusted capital adequacy, supported by a sizable capital base catering for the high quantum of underwriting and asset risks. Strong capital generation is expected to support risk adjusted capital adequacy at sound levels over the rating horizon, albeit partially offset by comparatively lower levels of dividend cover recorded more recently.
Asset quality is viewed to have improved to a moderately strong level, owing to a partial reduction in high risk financial assets, as well as improvements in aged premium debtors (following the implementation of the new premium credit regulations). The former, while improved, continues to represent a degree of risk to capital. This is largely a function of the investment restrictions imposed by the Conférence Interafricaine des Marchés d’Assurances (“CIMA”) code, which limits the investment asset classes and diversification available in the region.
Activa Cameroon is the third largest player in the domestic non-life insurance industry, recording an average share of 12% of industry gross premiums over the review period. GCR expects the insurer to maintain its top tier position, underpinned by strong brand recognition, well entrenched corporate relationships and increased market segment diversification into personal lines business.
The reinsurance programme structure introduces a moderate degree of counterparty concentration and credit risk. Cognisance is, however, taken of the moderate 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 rating may be upgraded if liquidity metrics remain at strengthened levels, in conjunction with enhanced cash flow management practices and/or sustained levels of asset quality. This would need to be supported by the maintenance of risk adjusted capitalisation and earnings capacity at strong levels. Conversely, the rating may be downgraded if liquidity metrics were to deteriorate and/or risk adjusted capital adequacy were to fall below expectations. Furthermore, sustained weakening in profitability, and/or material deterioration in competitive positioning may result in negative rating action.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2009)|
|Claims paying ability: A(CM)|
|Last rating (August 2014)|
|Claims paying ability: A(CM)|
|Primary Analyst||Committee Chairperson|
|Yvonne Masiku||Marc Chadwick|
|Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014
Activa Cameroon rating reports, 2009-2014
RATING LIMITATIONS AND DISCLAIMERS
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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.
Activa 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 Activa Assurances Limited with no contestation of the rating.
The information received from Activa Assurances Limited and other reliable third parties to accord the credit rating included:
- Audited financial results to 31 Dec 2014
- Unaudited interim results of to 31 Mar 2015
- Four years of comparative audited numbers
- Budgeted financial statements for 2015
- The current year reinsurance cover notes
- Statutory returns to 31 Dec 2014
- Industry comparative data, 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.
|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 more detailed glossary of terms/acronyms used as per GCR insurance glossary, please click here