Johannesburg, 31 May 2017– Global Credit Ratings has today affirmed the national scale financial strength rating assigned to CBZ Life (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 Life (Private) Limited (“CBZ Life”) based on the following key criteria:
CBZ Life’s capitalisation is viewed to be very strong. The insurer reflects robust capital growth, measuring at a compound annual growth rate of 66% over the review period, with capital rising to USD15m at FY16. Capital growth has been underpinned by strong net profitability and a well-controlled dividend policy. As such, a relatively high capital base has supported shareholder funds’ coverage of policyholder liabilities within a very strong range (FY16: 499%, BGT17: 373%), while maintaining an elevated coverage of market and insurance risk. In this respect, the insurer evidences sufficient capital buffers to maintain capitalisation within a very strong range over the rating horizon.
The insurer’s rating receives significant support from very strong earnings capacity, with the review period operating margin averaging a highly competitive 32%. This is largely a function of a well contained total benefits paid to total income ratio of 27% over the review period. Going forward, earnings capacity is expected to remain robust over the rating horizon, reflecting largely stable earnings drivers, and a conservative maximum deductible per risk (1% of net earned premium in FY16) on the reinsurance program.
Liquidity metrics have been maintained at very strong levels. This is largely a function of prudent asset allocation (with the majority of investments in cash and near cash assets) and robust working capital management. Accordingly, cash generation closely matched earnings, facilitating a sound cash build to USD17m at FY16. While management has indicated plans to invest USD7m in property and equities in FY17, excess cash reserves would be utilized with no negative impact on liquidity strength expected. Accordingly, post-investments cash coverage of average claims and policyholder liabilities is projected to measure at 48 months (FY16: 61 months) and 3x (FY16: 6x) thus, maintaining liquidity within a very strong range.
The rating is constrained by an intermediate level of competitive positioning, with CBZ Life accounting for 3% of industry long term gross premiums in FY16 (FY15: 4%). This is reflective of the impact of revenue volatility in credit life products on a concentrated product portfolio (dominated by two short term products). While the insurer is making concerted efforts to broaden the revenue mix through pension and whole life products, material changes may have to be achieved over the medium to long term.
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 may be upgraded following a substantial strengthening in the insurer’s business profile (by way of increased market share with enhanced earnings diversification), while medium term earnings capacity is maintained at sound levels. Conversely, negative ratings pressure could develop on the back of an aggressive investment strategy thereby affecting liquidity strength, and from a persistent deterioration in the operating result, coupled with capitalisation contracting on a sustained basis. 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)|
|Financial strength: BBB+(ZW)|
|Last rating (September 2016)|
|Financial strength: BBB+(ZW)|
|Godfrey Chingono||Linda Matavire|
|Credit Analyst||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Long Term Insurance, updated July 2016
CBZ Life (Private) Limited rating report, 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 Life (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 Life (Private) Limited with no contestation of the rating.
The information received from CBZ Life (Private) Limited and other reliable third parties to accord the credit rating includes:
- Audited financial results to 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
|Accounting||A process of recording, summarising, and allocating all items of income and expense of the company and analysing, verifying and reporting the results.|
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Benefits||Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.|
|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.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|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.|
|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.|
|Deductible||The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|Earned Premium||That part of the premium applicable to the expired part of the policy period, including the short-rate premium on cancellation, the entire premium on the amount of loss paid under some contracts, and the entire premium on the contract on the expiration of the policy. When a premium is paid in advance for a certain time, the company is said to “earn” the premium as the time advances.|
|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.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|Net Profit||Trading/operating profits after deducting the expenses detailed in the profit and loss account such as interest, tax, depreciation, auditors’ fees and directors’ fees.|
|Operating Margin||Measures the efficiency of profit generation from investments and underwriting.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.|
|Policyholder||The person in actual possession of an insurance policy.|
|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.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Short Term||Current; ordinarily less than one year.|
|Upgrade||The assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade.|
|Working Capital||Working capital usually refers to the resources that a company uses to finance day-to-day operations. Changes in working capital are assessed to explain movements in debt and cash balances.|
For a detailed glossary of terms please click here
GCR affirms CBZ Life (Private) Limited’s rating of BBB+(ZW); Outlook Stable.