Johannesburg, 27 Jan 2014 — 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(s) are valid until 11/2014.
Global Credit Ratings has accorded the above credit rating(s) on Assurances Réassurances Omnibranches based on the following key criteria:
Assurances Réassurances Omnibranches (“ARO”) is a composite insurer that has been operating for over 30 years, and is the market leader in Madagascar, with a market share in excess of 50%. The company is 73% held by government, with the balance comprising of a staff incentive trust (17%) and local institutional shareholders (10%). ARO offers both life and non-life insurance products, with the latter covering the full spectrum of short term insurance lines. In 2008, ARO joined the Globus Network, a network of insurance companies spanning across 30 countries on the African continent.
ARO’s rating is supported by its favourable position as the market leader in the domestic insurance industry, underpinned by well-established direct corporate relationships, strong brand value and comparatively high underwriting capacity. The international solvency margin has been maintained at robust levels over the review period, while statutory solvency has registered well above the regulatory minimum. Asset risk exposure is, however, viewed to be moderately high, with property accounting for 46% of capital at FYE12, while risky assets equate to 87% of capital. As such, capital remains significantly underpinned by unrealised investment gains. Liquidity is viewed to be strong, with surplus cash available to absorb operational strain, as well as an adequate level of technical reserve coverage.
The strong and consistent operating profit track record displayed supports the rating, with the non-life segment registering sound levels of aggregate profitability through the cycle. While risk management practices and technical analysis of key risk modules require development, note is taken of certain advances made. These include an external actuarial valuation of the life fund and claims reserves, as well as efforts centering on asset liability matching going forward.
The recent democratic elections bode well for increased political stability and economic growth going forward, in turn giving rise to the potential development and advancement of the local insurance industry in the medium to longer term. However, the increasing prominence of well-established international insurers in the domestic market implies a heightened level of business risk (encroaching on existing players’ market positions), and is expected to result in a degree of margin compression.
Upward movement of the rating or outlook may benefit from enhanced earnings diversification, particularly in terms of diversifying the policyholder base and increased stability in profit metrics, augmented by enhanced scale efficiencies contributing to operational flexibility. Furthermore, the rating may benefit from enhanced development of the industry and strengthening of the regulatory framework. Downward rating pressure may emanate from a sustained compression in profitability, particularly one that hampers capital generation needed to support growth, or compromising key liquidity metrics. Negative rating action may also follow significant loss in market share, particularly, negatively impacting on scale efficiencies and/or portfolio quality.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Jul/2006)|
|Claims paying ability: AA(MG)|
|Last rating (Nov/2012)|
|Claims paying ability: AA-(MG)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Eric Mafu|
|Regional Sector Head: Insurance||Junior Analyst|
|+27 11 784 1771||+27 11 784 1771|
|Sector Head: Financial Institution Ratings|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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 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/s 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 2012 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements, unaudited management accounts to June 2013, the current year reinsurance cover notes, actuarial valuation statement, debtors provisioning breakdown.
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.