Johannesburg, 30 September 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Activa International Insurance Company Limited of A-(GH), with the rating outlook accorded as Stable. The rating is valid until August 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Activa International Insurance Company Limited (“Activa Ghana”) based on the following key criteria:
Activa Ghana reflects very strong capitalisation, on the back of capital injections cumulatively amounting to GHS7m over the last two years. Accordingly, the international solvency margin amounted to a high 179% at FYE15 (BYE16: 117%). Moreover, risk adjusted capitalisation is very strong, supported by limited risk-asset exposures. GCR expects capitalisation to remain within a very strong range over the rating horizon, lending significant support to credit strength.
The insurer’s liquidity has been measured at sound levels. Liquidity has been supported by operational cash flow generation of GHS10.5m over the past three years, coupled with a GHS5m cash injection in FY15. On a normalised basis, the insurer is viewed to sustain a ratio of cash to net technical liabilities in excess of 2x, reflecting high liquidity strength. Going forward, cash coverage of technical provisions is expected to remain within a high range, albeit containing scope for volatility.
Activa Ghana’s competitive position is viewed to be intermediate, with an estimated market share of 5% in FY15 (FY14: 4%). Positively, the strong premium growth evidenced over the past four years points to the insurer’s resilience and scope to expand the current market share despite competitive pressures. This is supported by volumes derived through international partners, as well as sales in specialised commercial products.
The insurer’s earnings capacity is viewed to be intermediate, with strong technical margins (review period average: 77%) being offset by elevated operating costs stemming from the insurer’s relative lack of scale. Nonetheless, sizeable net commission recoveries owing to the insurer’s low retention offer some expense relief. Going forward, the insurer’s ability to increase revenue and develop material scale efficiencies will likely form a key rating consideration.
The reinsurance structure introduces a degree of counterparty credit risk, with reinsurance cover largely provided by a single reinsurer; Globus Re. Cognisance was, however, taken of the high credit quality of the underlying retrocessionaires in the Globus Re retrocession programme and the fact that Globus Re retains no risk for its own account.
Positive rating action may stem from a sustained improvement in earnings and competitive positioning. Conversely, negative rating sensitivities pertain to a reduction in credit protection metrics, coupled with a lowering in the insurer’s earnings or business profile.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (August 2014)|
|Claims paying ability: A-(GH)|
|Last rating (September 2015)|
|Claims paying ability: A-(GH)|
|Sector Head: Insurance Ratings|
|Junior Credit Analyst|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Activa Ghana rating reports, 2014-2015
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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Activa International 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 Activa International Insurance Company Limited with no contestation of the rating.
The information received from Activa International Insurance Company Limited and other reliable third parties to accord the credit rating included:
- Audited financial results to 31 December 2015
- Four years of comparative numbers
- Unaudited interim results to 30 June 2016
- Budgeted financial statements for 2016
- 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
|Bad Debt||Amounts in arrears, i.e. overdue, and often classified as defaulted or written-off.|
|Benefits||Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.|
|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.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Downgrade||The assignment of a lower credit rating to an insurer by a credit rating agency. Opposite of upgrade.|
|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.|
|International Solvency Margin||Measures the ability to cover current year’s written premiums using shareholder’s funds.|
|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.|
|Loss||The happening of the event for which insurance pays.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|Net Retention||The amount of insurance that a ceding company keeps for its own account and does not reinsure.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|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.|
|Retained Earnings||Earnings not paid out as dividends by a company. Retained earnings are typically reinvested back into the business and are an important component of shareholders’ equity.|
|Retention||The net amount of risk the ceding company keeps for its own account.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|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.|
|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.|
|Upgrade||The assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade|
For a detailed glossary of terms, please click here