Johannesburg, 30 July 2021 – GCR Ratings (“GCR”) has affirmed CBZ Insurance (Private) Limited’s (“CBZ Insurance”) national scale financial strength rating of BBB-(ZW), with the Outlook revised to Stable, from Negative.
|Rated entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|CBZ Insurance (Private) Limited||Financial Strength||National||BBB-(ZW)||Stable Outlook|
CBZ Insurance’s rating affirmation reflects a stabilisation in the insurer’s credit profile, emanating from a strengthening in market position and turnaround in earnings. The insurer receives implicit group support from the parent company, CBZ Holdings Limited (“the group”), reflected by a high level of integration into the group’s business model. The change in the Outlook to Stable is premised on GCR’s view that the insurer is likely to maintain its market position and register sustained earnings strength over the outlook horizon.
CBZ Insurance’s earnings profile improved in FY20, supported by sound underwriting profitability coupled with reduced exposure to net monetary losses. The insurer registered robust underwriting profitability over the past two years, driven by a favourable claims experience. As such, the net underwriting margin registered at 38% in FY20 (FY19: 43%; FY18: 4%) respectively. Furthermore, exposure to net monetary losses reduced on the back of lower premium receivables due to the conversion to short term policies along with the stability introduced by reintroduction of foreign currency denominated policies. In this respect, the net loss after tax equated to ZWL6m (FY19: ZWL119m). Going forward, earnings are expected to be maintained at improved levels, supported by expectations of relative stability to be introduced by foreign denominated business.
CBZ Insurance’s capital base amounted to a higher USD2.2m at FY20 (FY19: USD1.9m) supported by a capital injection by the parent, albeit risk adjusted capitalisation moderated due to increased exposure to risky assets. While we note management’s strategy to invest in value preserving assets given the hyperinflationary environment, the insurer’s ability to balance capital accumulation with growth in insurance and market risks is a key rating consideration.
Liquidity was maintained within an intermediate range, although the aforesaid exposure to risky assets moderated the liquidity metrics. In this respect, cash and stressed financial assets coverage of net technical liabilities registered at 1.1x at FY20 (FY19: 1.4x), while coverage of operational cash coverage equated to around 5 months (FY19: 10months). Liquidity metrics are expected to be maintained within a similar range in line with a consistent investment strategy.
CBZ Insurance strengthened its market position supported by growth in the farming book coupled with reintroduction of foreign denominated policies. In this respect, the market share registered at a higher 6.5% in FY20 (FY19: 4.8%; FY18: 4.7%). Furthermore, the insurer’s premium diversification assessment was maintained within an intermediate range, with three lines of business contributing materially to the gross premium base, although noting business source concentration to the group and the Zimbabwe market.
The rating derives uplift from implied parental support from CBZ Holdings Limited, with the insurer exhibiting strong integration with the group through operational and brand alignment, cross-selling of products within the group, as well as history of support demonstrated by the recent capital injection.
The Stable Outlook is premised on expectations that the insurer will maintain its market position whilst earnings improvement is sustained over the rating horizon. Capitalisation and liquidity factors are expected to remain within current ranges, balancing growth in underwriting risks and expectations of improved capital generation prospects.
A rating upgrade is likely to follow continued improvement in competitiveness and earnings , positively impacting risk adjusted capitalisation and liquidity. Negative rating action could result from a weakening in earnings beyond expectation, resulting in a deterioration in capitalisation and liquidity metrics.
|Primary analyst||Linda Matavire||Analyst: Insurance Ratings|
|Johannesburg, ZA||LindaM@GCRratings.com||+27 11 784 1771|
|Committee chair||Susan Hawthorne||Senior Analys: Insurance Ratings|
|Johannesburg, ZA||SusanH@GCRratings.com||+27 11 784 1771|
Related criteria and research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Insurance Companies, May 2019|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|Jurisdictional Supplement for Criteria, July 2020|
|GCR Country Risk Scores, July 2021|
|GCR Insurance Sector Risk Scores, April 2021
CBZ Insurance (Private) Limited
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Claims Paying Ability||Initial||National||BBB(ZW)||Positive Outlook||March 2016|
|Financial Strength||Last||National||BBB-(ZW)||Negative Outlook||July 2020|
Risk score summary
|Rating components and factors||Risk score|
|Country risk score||0.00|
|Sector risk score||2.75|
|Management and governance||0.00|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Primary Market||The part of the capital markets that deals with the issuance of new securities.|
|Private||An issuance of securities without market participation, however, with a select few investors. Placed on a private basis and not in the open market.|
|Property||Movable or immovable asset.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|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.|
|Reserves||A portion of funds allocated for an eventuality.|
|Retention||The net amount of risk the ceding company keeps for its own account.|
|Revaluation||Formal upward or downward adjustment to assets such as property or plant and equipment.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Secondary Market||The secondary market is where securities are bought and sold once they have been issued in the primary markets.|
|Security||One of various instruments used in the capital market to raise funds.|
|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.|
|Spread||The interest rate that is paid in addition to the reference rate for debt securities.|
|Technical Liabilities||The sum of Net UPR and Net OCR IBNR.|
|Technical Margin||Measures the percentage of net earned premiums remaining after accounting for claims and expenses incurred.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
|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.|
|Upgrade||The rating has been raised on its specific scale.|
Salient Points of Accorded Rating
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating is based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating is an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to the rated entity. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The information received from the entity and other reliable third parties to accord the credit rating included:
- Audited financial statements as at 31 December 2020;
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements for 2021;
- Unaudited interim results to 31 May 2021
- Reinsurance cover notes for 2021;
- Other relevant documents.