Johannesburg, 29 February 2016 — 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 2016.
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 position as the market leader in the domestic insurance arena, with a dominant market share of 62% in FY14, represents a rating strength. The insurer’s competitive market position is supported by well-established corporate relationships and strong brand recognition. Further, capital adequacy is viewed as a relative rating strength. ARO’s large capital base (FYE14: USD85m) allows for a sizeable buffer relative to insurance and asset risks. As such, both the international solvency margin and risk adjusted capitalisation have been reported at robust levels. Capital strength is expected to persist going forward, in light of projected capital growth.
Liquidity is considered sound, with cash coverage of aggregate monthly claims consistently tracking at healthy levels over the review period. Cash coverage of net technical liabilities is viewed as adequate, particularly in the context of the inclusion of long term policyholder liabilities within the technical provision. However, the financial investment portfolio reflects exposure to investment risk, given that the investment allocation remains skewed towards illiquid non-cash invested 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.
ARO exhibits sound net profitability, with an improving expense ratio and high volumes of investment income offsetting loss ratio volatility. Over the review period, the insurer has evidenced a strong average operating margin of 22%. Furthermore, earnings are viewed to be well diversified by product, given that multiple lines of business continue to contribute meaningfully to premium volumes. Material reinsurance partners evidence a moderate level of counterparty strength, whilst treaty net deductibles per risk and event remain well contained relative to capital (largest exposure: 0.7% at FYE14).
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. Downward rating pressure could emanate from sustained compression in profitability, a protracted severe decline in key solvency and liquidity metrics, and/or a significant loss in market share (impacting negatively on scale efficiencies and/or portfolio quality). 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)|
|Last rating (November 2014)|
|Claims paying ability: AA-(MG)|
|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
Assurances Réassurances Omnibranches rating reports (2006-2014)
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.
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 2014
- 4 years of comparative audited numbers
- Unaudited year to date results to 30 June 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 ratings.
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 affirms Assurances Réassurances Omnibranches’ rating of AA-(MG); Outlook Stable.