Announcements

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

Johannesburg, 14 December 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Botswana Insurance Company Limited at AA-(BW), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Botswana Insurance Company Limited at BBB-; with the outlook accorded as Stable. The ratings are valid until November 2016.

SUMMARY RATING RATIONALE

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

BIC’s rating is supported by a very strong market position, accounting for more than twice the average market premium in FY14. This is supported by strong brand recognition and well entrenched relationships with clients. Going forward, the insurer is viewed to be positioned to defend its very strong market presence in the face of increasing competitive pressures and market dynamics.

Capitalisation is viewed to be robust, and a key rating strength. Sound profit generation has seen capital accumulate at a healthy rate over the review period, with capital maintained by well-balanced and consistent dividend distributions. Accordingly, 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.

Profitability is viewed to be moderately strong, albeit below the extremely high levels observed historically. In this respect, the underwriting margin lowered to 6% in FY14, primarily on the back of heightened of rates pressures. This reflects the tighter competitive environment within the industry which is likely to persist over the rating horizon, and as such underwriting profit margins are expected to trend at similarly moderated levels over the medium term.

BIC continues to exhibit a moderately risky investment mix, with financial assets dominating the asset allocation (at 71% of the portfolio at FYE14). Nevertheless, the asset risk presented thereby is well supported by capital buffers. High allocations to financial assets do, however, result in the insurer’s cash holdings being viewed to result in intermediate liquidity metrics. These rise to moderately strong levels inclusive of tradable instruments.

BIC’s revenue is viewed to be fairly well diversified across product lines, with three lines of business contributing significantly to the risk base. However, weaker diversification prevails within the risk premium base, with a notable weighting towards motor (53% of NWP in FY14). While motor provides critical mass for cost absorption, margin pressure exerted on this line of business is expected to continue to contribute negatively towards the overall earnings profile.

BIC’s international scale rating is supported by Botswana’s relatively strong A- sovereign rating, 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.

BIC’s rating currently matches the national scale ceiling applicable to entities operating within the Botswana 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 a prolonged weakening in earnings capacity, a sustained loss of market share and/or a further weakening in liquidity metrics.

NATIONAL SCALE RATINGS HISTORY

INTERNATIONAL SCALE RATINGS HISTORY
Initial rating (December 2009) Initial rating (November 2013)
Claims paying ability: A+BW) Claims paying ability: BBB-
Outlook: Stable Outlook: Stable
   
Last rating (November 2014) Last rating (November 2014)
Claims paying ability: AA-(BW) Claims paying ability: BBB-
Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

Primary analyst Secondary Analyst
Marc Chadwick Kudzai Siwawa
Sector Head: Insurance Ratings Junior Credit Analyst
(011)784-1771 (011)784-1771
chadwick@globalratings.net siwawa@globalratings.net
   
Committee Chairperson  
Susan Hawthorne  
Senior Credit Analyst  
(011)784-1771  
susanh@globalratings.net  

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2015

Botswana Insurance Company Limited rating reports (2009-2014)

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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were 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 ratings have 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 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 ratings above were 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 Botswana Insurance Company Limited’s rating of AA-(BW); Outlook Stable.

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