Announcements

GCR affirms Botswana Insurance Company Limited’s rating of AA-(BW); Outlook Stable.

Johannesburg, 1 December 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Botswana Insurance Company Limited of AA-(BW); with the outlook accorded as Stable. Furthermore, the international scale rating assigned to Botswana Insurance Company Limited was maintained at BBB-; with the outlook accorded as Stable. The rating(s) are valid until 11/2015.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Botswana Insurance Company Limited (“BIC”) based on the following key criteria:

BIC’s rating is supported by its position as the market leader in the short-term insurance arena in Botswana, accounting for more than twice the average market premium in F13. This notwithstanding, sustained competitive pressure has given rise to some degree of market share erosion, with counteractive measures over the short to medium term deemed pivotal to sustain competitive strength. Further, a well balanced approach to capital management has seen capital accumulate at a healthy rate over the review period, whilst frequent, well balanced dividend distributions aid to ensure future shareholder support. On the back of this, the insurer continues to display a robust level of risk adjusted capitalisation, which in anticipation of reasonably stable premium and investment mixes supports GCR’s favourable view of BIC’s future capital strength.

A sustained competitive earned loss ratio, coupled with a reasonably aligned delivery cost structure has supported a robust, above industry norm level of underwriting profitability over the review period. Going forward, however, margin levels are likely to more closely approximate the peer average, as the insurer sacrifices some margin headroom for more meaningful premium growth. BIC continues to exhibit a moderately risky investment mix, with financial assets dominating asset allocation (at 67% at FYE13). Nevertheless, the deliberate disposal of select listed equities has supported a notable enhancement in key liquidity metrics to adequate levels in F13, with a more balanced investment portfolio targeted over the medium term.

Some risk to revenue prevails amidst a continued high intermediary concentration (albeit a function of prevailing market dynamics), as well as a notable gearing of the risk premium base towards motor (60% of NWP in F13). Nevertheless, considering the small underwriting profits registered by this class for years under review, it provides critical mass to the remainder of the portfolio and thus aides overall cost absorption.

BIC’s international scale rating is supported by Botswana’s relatively strong sovereign rating (A-; S&P July 2014), albeit an elevated degree of asset conversion risk persists amidst a sizeable share of financial assets being vested in lower rated or unrated foreign jurisdictions. Positively, material reinsurance counterparties evidence a solid aggregate level of counterparty strength, with counterparty risk considered well contained.

In consideration of prevailing characteristics in the Botswana insurance arena, the industry rating ceiling remains capped at AA-(BW). An upward adjustment of the insurer’s rating (which constitutes the highest rating a short term insurer in Botswana currently can be accorded by GCR) may be considered over the short to medium term upon an upward revision of the industry risk assessment. Conversely, downward rating pressure could emanate from i) a weakening in the underwriting margin over a prolonged period (below industry norms), thus impacting adversely on earnings generation; ii) a sustained loss of market share driving a weakened business profile and/or iii) an increased relative prominence in illiquid financial assets (thereby inferring sustained pressure on key liquidity metrics).

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATINGS HISTORY
Initial rating (Dec/2009) Initial rating (Nov/2013)
Claims paying ability: A+(BW) Claims paying ability: BBB-
Outlook: Stable Outlook: Stable
Last rating (Nov/2013) Last rating (Nov/2013)
Claims paying ability: AA-(BW) Claims paying ability: BBB-
Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Benjamin Schmidt
Senior Analyst
(011) 784-1771
Schmidt@globalratings.net

Committee Chairperson
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies, July 2014
Botswana Insurance Company Limited rating reports 2009-2013.

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.

Botswana 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/s has been disclosed to Botswana Insurance Company Limited with no contestation of the rating.

The information received from Botswana Insurance Company Limited and other reliable third parties to accord the credit rating(s) included 2013 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year 2014 detailed budgeted financial statements, year to date management accounts to 31 August 2014, 2014 retrocession cover notes, 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.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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