Announcements

GCR affirms CBZ Insurance (Private) Limited’s rating of BBB+(ZW); Outlook Stable.

Johannesburg, 17 May 2017– Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to CBZ Insurance (Private) Limited of BBB+(ZW), with the outlook accorded as Stable. The rating is valid until May 2018.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to CBZ Insurance (Private) Limited (“CBZ Insurance”) based on the following key criteria:

CBZ Insurance’s risk adjusted capitalisation is expected to remain at very strong levels over the rating horizon, supported by robust internal capital generation catering for the expected increase in the quantum of insurance and market risk exposures. In this respect, the international solvency margin is expected to register around 90% at FY17 (FY16: 92%), supported by a conservative dividend policy.

Liquidity metrics have been maintained at very strong levels, supported by sound cash generation and conservative asset allocation. This is evidenced by very high claims cash coverage of 34 months at FY16 (FY15: 32 months) and very strong technical reserve coverage of 2.5x (FY15: 2.0x). While management has indicated plans to invest USD1m into investment property, excess cash reserves would be utilised, with no negative impact on liquidity strength expected over the rating horizon.

The insurer’s earnings capacity is viewed to be very strong, supported by robust underwriting profitability. In this respect, the underwriting margin averaged 15% over the review period (FY16: 15%; FY15: 26%), driven by comparative advantages in sourcing business, given group arrangements (review period net commission ratio: -2%). Although this advantage may reduce going forward, increased scale efficiencies may continue to underpin strong underwriting margins in FY17 (FY15: 16%). As such, the insurer’s earnings capacity is expected to be maintained within a very strong range over the rating horizon. Reinsurance counterparties evidence an intermediate level of aggregate credit strength with maximum exposure per risk and event maintained at a conservative 0.4% of FY16 capital.

The rating is constrained by an intermediate level of competitive positioning, with CBZ Insurance accounting for 5% of industry short term gross premiums in FY16. While the insurer’s competitive positioning is dependent on potential broker business enhancing participation on risks outside the group, an improvement in market share could only be realized over the medium term. In this respect, competitive position is likely to be maintained within an intermediate range over the rating horizon.

CBZ Insurance’s earnings profile is considered sound, given market breadth and industry norms. Gross premiums were generated from three lines of business, which account for more than 10% of the business mix, with increased emphasis on property risks (13%) likely to dilute the slant towards motor (63%) going forward. Aggregate product risk is expected to remain rating adequate, with concentration to motor risks offset by the granular nature of the book. As such, the product portfolio is viewed to tolerate higher retention in targeted riskier products. In this respect, the insurer’s earnings profile is expected to remain sound over the rating horizon.

GCR views country risk factors to be elevated, and a systemic rating consideration applicable to insurers. Operational challenges are likely to persist given the uncertain socio-political outlook, severe liquidity strain, reduction in banking sector stability and weak macroeconomic fundamentals.

The rating could be upgraded on the back of an enhanced business profile, coupled with earnings capacity registering within a strong range and maintenance of rating appropriate credit protection metrics. Conversely, negative ratings pressure could arise from a material weakening in capitalisation and liquidity measures or a sustained reduction in earnings capacity. Should the economic or socio-political outlook deteriorate further, the rating ceiling of the insurance sector may be reviewed.

NATIONAL SCALE RATINGS HISTORY

 
Initial rating (March 2016)
Claims paying ability: BBB(ZW)
Outlook: Positive
 
Last rating (September 2016)
Claims paying ability: BBB+(ZW)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst

  Secondary Analyst
Godfrey Chingono   Linda Matavire
Credit Analyst   Junior Credit Analyst
(011) 784-1771   (011) 784-1771
godfreyc@globalratings.net   lindam@globalratings.net
     
Committee Chairperson    
Yvonne Mujuru    
Sector Head: Insurance Ratings    
(011) 784-1771    
ymujuru@globalratings.net

   

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2016

CBZ Insurance (Private) Limited rating reports, 2016

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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

CBZ Insurance (Private) Limited participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating has been disclosed to CBZ Insurance (Private) Limited with no contestation of the rating.

The information received from CBZ Insurance (Private) Limited and other reliable third parties to accord the credit rating includes:

  • Audited financial results as per 31 December 2016
  • Four years of comparative audited numbers
  • Budgeted financial statements for 2017
  • Actuarial valuation report for 31 December 2016
  • The current year reinsurance cover notes
  • Other non-public statistical information

The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY

Capacity The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.
Capital The sum of money that is invested to generate proceeds.
Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
Cash Funds that can be readily spent or used to meet current obligations.
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.
Country Risk The range of risks emerging from the political, legal, economic and social conditions of a country that have adverse consequences affecting investors and creditors with exposure to the country, and may also include negative effects on financial institutions and borrowers in the country.
Coverage The scope of the protection provided under a contract of insurance.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.
International Scale Rating LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
International Solvency Margin Measures the ability to cover current year’s written premiums using shareholder’s funds.
Liquidity The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Market Risk Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.
Portfolio All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
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 (1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.
Retention The net amount of risk the ceding company keeps for its own account.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Current; ordinarily less than one year.
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.
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.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
Upgrade The assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade.

For a detailed glossary of terms please click here

GCR affirms CBZ Insurance (Private) Limited’s rating of BBB+(ZW); Outlook Stable.

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