Johannesburg, 10 Dec 2013 — 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, Global Credit Ratings has assigned an initial international scale rating of BBB- to Botswana Insurance Company Limited; 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 Botswana Insurance Company Limited based on the following key criteria:
Botswana Insurance Company Limited (“BIC”) commenced operations as a composite insurer in 1975. The business was subsequently split into life and non-life operations in 1991, with the latter forming the mainstay source of business for BIC in the subsequent years. The majority of BIC’s shares (62.5%) are currently held by TA Holdings Limited (“TA”), which has extensive interests in the property and insurance sectors in Zimbabwe and neighbouring countries. TA reflected a US$9.9m market capitalisation as at the end of November 2013. The remaining shares are held by private individuals and a staff incentive trust. As at FYE12, BIC accounted for a 22% non-life insurance market share.
The rating is supported by BIC’s position as the market leader in the domestic non-life insurance arena. However, amidst increased competitive pressure within the top tier market segment, the insurer’s market share has reduced notably in recent years, with a further negative growth trajectory anticipated going forward. BIC has registered consecutive underwriting profits over the review period, which continues to underpin earnings generation. Nonetheless, margin levels have been somewhat volatile and are forecast to trend gradually downwards going forward, amidst a high operating cost base (relative to its peers) and a soft rates environment. Positively, the international solvency margin has trended persistently upwards over the review period, to equate to a comfortable 139% in F12. For F13, a further notable increase to 180% is expected, albeit a function of an anticipated reduction in premium income. The insurer continues to adopt a moderately aggressive investment strategy, with non-cash investments collectively comprising an elevated 78% of FYE12 capital. Further, following relative historic stability, claims cash coverage weakened to 9 months in F12. On the back of the sale of select listed equities post year-end F12, claims cash coverage is expected to recover to 13 months at year-end F13, a level which management remains committed to maintaining going forward. Heightened concentration risk stems from a limited degree of broker diversification and an increased gearing of the risk premium base to motor (57% of NWP in F12).
BIC’s international scale rating is supported by Botswana’s relatively strong sovereign rating (A-; S&P July 2013), 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, the credit quality of the insurer’s retrocession counterparties is largely considered sound.
An upward adjustment of the rating could develop on the back of a notable strengthening in the insurer’s liquidity position, while sustaining the adjusted international solvency margin at the current level. Further, a demonstrated profitable premium growth trajectory, coupled with improved business diversification and the maintenance of healthy underwriting margins would be positively viewed. 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) a protracted decline in key liquidity metrics below current levels (amidst an increasingly aggressive investment stance).
NATIONAL SCALE RATINGS HISTORY
Initial rating (Dec/2009)
Claims paying ability: A+(BW)
Last rating (Nov/2012)
Claims paying ability: AA-(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.
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 included 2012 audited annual financial statements (plus four years of comparative numbers), full year 2013 detailed budgeted financial statements, unaudited year to date management accounts to 30 September 2013, 2013 reinsurance cover notes, statutory returns for 2011 and 2012, 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.