Announcements

GCR affirms Assurances Réassurances Omnibranches’ rating of AA-(MG); Outlook Stable.

Johannesburg, 30 January 2018– Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Assurances Réassurances Omnibranches of AA-(MG), with the outlook accorded as Stable. The rating is valid until November 2018.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Assurances Réassurances Omnibranches (“ARO”) based on the following key criteria:

ARO’s competitive position is viewed to be very strong. In this respect, the insurer retains its market leading position in the domestic insurance market, with a stable market share of 63% in FY16. ARO’s market dominance by revenue is expected to be sustained going forward, supported by entrenched brand recognition and well established relationships with clients.

The insurer evidenced very strong risk adjusted capitalisation, supported by a sizable capital base (FY16: USD70m), catering for assumed risk exposures. As such, the international solvency margin for short term and acceptance business measured at very strong levels, consistently trending above 400% over the review period (FY16: 451%). Risk adjusted capitalisation is expected to remain within a very strong range going forward, supported by large capital base. Furthermore, treaty net deductibles per risk and event remain well contained relative to capital (largest exposure: 0.6% at FY16), while material reinsurance partners evidence a moderate level of counterparty strength.

Liquidity metrics remain sound and are expected to measure within a similar level going forward, underpinned by a stable cash base. In this respect, claims cash coverage equated to 46 months at FY16 (FY15: 61 months), trending close to the recent four year average of 51 months. Cash coverage of net technical liabilities is deemed adequate, given the inclusion of long term policyholders’ liabilities in technical provisions. As such, cash coverage of net technical provisions remained flat at 0.5x at FY16, consistent with the recent three-year average.

ARO’s earnings capacity strengthened in the recent two-year cycle, supported by favourable claims and a lower operating cost base. In this respect, the insurer posted strong operating margins, averaging 32% in the recent two-year cycle, compared to 16% realised in the prior two-year cycle. The ability to sustain the current operating cost structure coupled with prospects of further premium build is viewed as a potential source of improved underwriting profitability and enhanced earnings strength going forward.

Asset quality reflects exposure to market risk, given that the investment allocation remains skewed towards illiquid assets (including unlisted investments and a sizeable property portfolio). In the absence of alternate investment avenues in the domestic market, balance sheet quality remains a key focus area over the short to medium term.

GCR views ARO’s stand-alone credit profile as deriving upliftment from the Malagasy government, given that the latter controls the majority of the insurer’s shareholding (73% at FY16).

ARO’s rating currently matches the national scale ceiling applicable to entities operating within the Madagascar short term insurance industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. Conversely, downward rating pressure could emanate from sustained compression in profitability, a protracted decline in solvency and credit protection metrics, and/or significant loss of market share. Further, any unforeseen operational challenges arising from the proposed business deconsolidation may lead to rating compression over the medium term.

NATIONAL SCALE RATINGS HISTORY
 
Initial rating (July 2006)
Claims paying ability: AA(MG)
Outlook: Stable
 
Last rating (May 2017)
Claims paying ability: AA-(MG)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst Committee Chairperson

Tichaona Nyakudya Yvonne Mujuru
Credit Analyst Sector Head: Insurance Ratings
(011) 784-1771 (011) 784-1771
tichaonan@globalratings.net ymujuru@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2017

Criteria for Rating Long Term Insurance Companies, updated July 2017

Assurances Réassurances Omnibranches rating reports (2006-2017)

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 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.

Assurances Réassurances Omnibranches participated in the rating process via teleconference management meetings and/or 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 Assurances Réassurances Omnibranches with no contestation of the rating.

The information received from Assurances Réassurances Omnibranches and other reliable third parties to accord the credit rating included:

  • The audited annual financial statements to December 2016
  • Four years of comparative audited numbers
  • Unaudited year to date results to 30 June 2017
  • Budgeted financial statements to December 2018
  • 2017 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

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.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Distribution Channel The method utilised by the insurance company to sell its products to policyholders.
Enterprise Risk Management ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.
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 (“ISR”) 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.
Intermediary A third party in the sale and administration of insurance products.
Interest Money paid for the use of money.
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.
Market Risk Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.
National Scale Rating (“NSR”) National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.
Policyholder The person in actual possession of an insurance policy.
Portfolio All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
Short Term Current; ordinarily less than one year.
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.
Subordinated Debt Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.
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.
Underwriting Margin Measures efficiency of underwriting and expense management processes.

For a more detailed glossary of terms, please click here.

GCR affirms Assurances Réassurances Omnibranches’ rating of AA-(MG); Outlook Stable.

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