Announcements Insurance Rating Alerts

GCR affirms CBZ Insurance’s BBB-(ZW) national scale rating, revises Outlook from Negative to Stable on improved earnings and strengthening in market position

Rating action

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

Rating rationale

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.

Outlook statement

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.

Rating triggers

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.

Analytical contacts

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

0263

Rating history

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
Operating environment 2.75
Country risk score 0.00
Sector risk score 2.75
Business profile (1.25)
Competitive position (0.25)
Premium diversification (1.00)
Management and governance 0.00
Financial profile 0.00
Earnings 0.50
Capitalisation (0.25)
Liquidity (0.25)
Comparative profile 1.00
Group support 1.00
Government support 0.00
Peer analysis 0.00
Total score 2.50

Glossary

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.


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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.