Johannesburg, 28 Jan 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Export Credit Insurance and Guarantee Company (Botswana) (Pty) Limited of A-(BW); 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 Export Credit Insurance and Guarantee Company (Botswana) (Pty) Limited based on the following key criteria:
Export Credit Insurance and Guarantee Company (Botswana) (Pty) Ltd (“BECI”) was established in 1996. In recent years, the company has expanded its product portfolio to include performance bonds, legal insurance and CAR cover. Nonetheless, at a 1.6% non-life insurance market share in 2012, the company’s market presence remains subdued.
Significant rating support is derived from the fact that the insurer is 100% owned by the Botswana Development Corporation Limited (“BDC”), which itself is wholly owned by the Botswana government. In addition, the insurer remains the only domestically registered insurer offering credit insurance in Botswana, albeit acceptance of the associated product offering remains constrained. The international solvency margin has trended at adequate levels in recent years and is forecast to remain sound going forward. Nonetheless, in absolute terms the capital base remains subdued, which in the absence of added capital commitments by shareholders continues to limit underwriting capacity and earnings generation. Note is taken of the absolute size of the investment portfolio relative to capital and the strong focus on cash instruments, which is supportive of sound liquidity metrics. Going forward, no material change in the investment strategy is envisaged. Whilst the debtors book remains well contained and qualitatively sound, some balance sheet risk emanates from interest bearing borrowings raised to fund the construction of a new head office (completed in 1Q 2013). The weak underwriting trend displayed over the review period remains a constraining factor, with BECI registering losses in 4 of the last 5 years under review. This stems from the lack of premium scale, which remains insufficient to absorb operating costs. As such, earnings remain solely underpinned by investment and other income. Further, the cyclical nature of performance bonds and credit insurance exposes the insurer to the vagaries of the underlying economy, which remains heavily dependent on the government’s infrastructure development budget. Relative to capital, net exposures per risk are deemed high, while the lack of XoL cover (due largely to prohibitive pricing and perceived risk mitigant characteristics associated with the underlying risks) implies potential accumulation risk exposure.
An upward adjustment of the rating remains subject to the insurer attaining meaningful and profitable premium growth over a protracted period, thus sustainably improving scale efficiencies and achieving underwriting profitability over a prolonged time horizon. Further, the raising of additional capital and subsequent bolstering of capacity would be positively viewed. Conversely, negative rating action may follow the adoption of a markedly more aggressive investment strategy, thus unduly compromising key liquidity measures and undermining solvency metrics. Further, a sustained loss of premium scale, coupled with increasing negative margin levels could give rise to downward rating pressure.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Dec/2010)
Claims paying ability: A(BW)
Last rating (Nov/2012)
Claims paying ability: A-(BW)
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Regional Sector Head: Insurance
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies
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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.
Export Credit Insurance and Guarantee Company (Botswana) (Pty) 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/s has been disclosed to Export Credit Insurance and Guarantee Company (Botswana) (Pty) Limited with no contestation of the rating.
The information received from Export Credit Insurance and Guarantee Company (Botswana) (Pty) Limited and other reliable third parties to accord the credit rating included F13 audited annual financial statements (plus four years of comparative numbers), full year F14 detailed budgeted financial statements, unaudited 1Q F14 management accounts, F14 reinsurance cover notes, statutory returns for F12 and F13, as well as other non-public statistical information.
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.