Johannesburg, 3 Jun 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to CIC General Insurance Limited of A(KE); with the outlook revised to Stable from Negative. The rating is valid until May 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to CIC General Insurance Limited (“CIC General”) based on the following key criteria:
The revision of the rating outlook to Stable from Negative reflects management action aimed at stabilising capitalisation through a series of capital injections, and more recently a formalised dividend policy. To this end, the company benefited from KES800m in capital from its parent in FY14, exceeding the KES200m initially planned, and followed KES200m received in FY13. Accordingly, risk-based capital adequacy has measured at adequate levels, which is expected to be maintained during the next 12 months. Partly offsetting this is the lack of a strong risk-based capital management strategy, particularly in light of capital pressures stemming from robust multi-year retained premium growth.
CIC General continues to display a leading market position, underpinned by an established brand and a widening distribution footprint. This is expected to continue to benefit the insurer in achieving its strategic growth plans and maintaining a strong business profile.
The insurer has displayed a good underwriting track record, with a 5-year average combined ratio of 94% reported. However, the sustained underperformance of the core medical portfolio has begun to increasingly pressurise earnings capacity. As such, management’s ability to address weaknesses in pricing and claims controls in its core lines in order to restore historically strong earnings presents a level of execution risk. This is viewed particularly in light of the need to support sustained strong capital growth and business expansion ambitions.
CIC General’s liquidity position is considered moderately strong. Positively, a stable investment mandate has been maintained, with the investment profile weighted largely towards cash based assets (above 60%). Asset quality is regarded as good, with exposure to market risk viewed as moderate. Cognisance is also taken of the limited diversification within the insurer’s risk premium base, which represents a relative rating weakness.
Positive rating actions are unlikely in the near term. However, the stabilisation of CIC General’s earnings performance and risk-adjusted capitalisation at stronger levels could result in upward movement of the ratings over the longer term. Negative rating actions could follow a deterioration in operating performance, risk-adjusted capitalisation or liquidity.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (May 2013)|
|Claims paying ability: A(KE)|
|Last rating (May 2014)|
|Claims paying ability: A(KE)|
|Primary Analyst||Committee Chairperson|
|Sheri Few||Marc Chadwick|
|Senior Analyst||Sector Head: Insurance|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014
CIC General reports, 2013-2014
RATING LIMITATIONS AND DISCLAIMERS
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GLOSSARY OF TERMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Assets||The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Bond||A certificate issued by a government or corporation as evidence of a debt. The issuer of the bond promises to pay the bondholder a specified amount of interest for a specified period and to repay the loan on the expiration (maturity) date.|
|Broker||One who represents an insured in the solicitation, negotiation or procurement of contracts of insurance, and who may render services incidental to those functions. By law the broker may also be an agent of the insurer for certain purposes such as delivery of the policy or collection of the premium.|
|Business||In Property, Liability, and Health lines, it usually refers to the volume of premiums.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|Capital Gain||Profit realised on the sale of securities. An unrealised capital gain is an increase in the value of securities that have not been sold.|
|Cede||To transfer all or part of a risk written by an insurer (the ceding or primary company) to a reinsurer.|
|Cession||Amount of the insurance ceded to a reinsurer by the original insuring company in a reinsurance transaction.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Claims incurred||Claims that have occurred, irrespective of whether or not they have been reported to the insurer.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Covered||A person covered by a pension plan is one who has fulfilled the eligibility requirements in the plan, for whom benefits have accrued, or are accruing, or who is receiving benefits under the plan.|
|Equities||Investments in the form of ownership of property, usually common stocks, as distinguished from fixed income bearing securities, such as bonds or mortgages.|
|ERM.||Enterprise Risk Management.|
|Expense Ratio||The ratio of a company’s operating expenses to premiums.|
|Gross written premium (GWP)||The total premium written and assumed by an insurer before deductions for reinsurance and ceding commissions.|
|Insurance||A formal social device for reducing risk by transferring the risks of several individual entities to an insurer. The insurer agrees, for a consideration, to assume, to a specified extent, the losses suffered by the insured.|
|Interest||Money paid for the use of money.|
|Intermediary||A third party in the design, negotiation, and administration of a reinsurance agreement. Intermediaries recommend to cedant’s the type and amount of reinsurance to be purchased and negotiate the placement of coverage with reinsurers.|
|Investment Income||The income generated by a company’s portfolio of investments (such as in bonds, stocks, or other financial ventures).|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss||The happening of the event for which insurance pays.|
|Loss Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|Market Risk||A risk experienced by those who invest in securities which is the risk of possible loss of investment since there are no guarantees associated with such investments.|
|Net income after tax||The insurer’s total earnings (or profit).|
|Net incurred loss||The total amount of paid claims and loss reserves associated with a particular time period, less the reinsurance portion.|
|Net written premium||Written premium less deductions for ceded reinsurance.|
|Operating expenses||Expenses linked to management’s efforts to run the day to day business. This includes amongst other things marketing & administrative expenses|
|Personal Lines||Types of insurance, such as auto or home insurance, for individuals or families rather than for businesses or organisations.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Quota Share||The basic form of participating treaty whereby the reinsurer accepts a stated percentage of each and every risk within a defined category of business on a pro rata basis. Participation in each risk is fixed and certain.|
|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.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk Management||An effort by a company or individuals employed or contracted by the company to minimise expenditure and maximise profitability.|
|Securities||Evidences of a debt or of ownership, as stocks, bonds, and checks.|
|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.|
|Statutory||Required by or having to do with law or statute.|
|Surplus||The excess of assets over liabilities. Statutory surplus is an insurer’s or reinsurer’s capital as determined under statutory accounting rules. Surplus determines an insurer’s or reinsurer’s capacity to write business responsibility for only that portion of any risk, which exceeds the company’s established retentions.|
|Taxation||Taxation refers to the act of a taxing authority actually levying tax.|
|Term||The period of time for which a policy or bond is issued.|
|Term Insurance||Life or health insurance protection during a limited number of years but expiring without value if the insured survives the stated period.|
|Total assets||The final amount of all gross investments, cash and equivalents, receivables, and other assets as they are presented on the balance sheet.|
|Total capital||The sum of Owner’s equity and Admissible supplementary capital|
|Total Loss||A loss of sufficient size so that it can be said there is nothing left of value. The complete destruction of the property. The term is also used to mean a loss requiring the maximum amount a policy will pay.|
|Treaty||A general reinsurance agreement which is obligatory between the ceding company and the reinsurer containing the contractual terms applying to the reinsurance of some class or classes of business, in contrast to a reinsurance agreement covering an individual risk.|
|UMA||Underwriting Management Agent.|
|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.|
|Unrealised gains / (losses)||A profit that exists on paper, resulting from any type of investment. An unrealized gain is a profitable position that has yet to be cashed in, such as a winning stock position that remains open.|
For a detailed glossary of terms utilised in this announcement please click here
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.
CIC General Insurance 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 CIC General Insurance Limited with no contestation of the rating.
The information received from CIC General Insurance Limited and other reliable third parties to accord the credit rating(s) included;
- Audited financial results of Company as at 31 Dec 2014
- Four years prior audited financial statements
- Unaudited interim results as per 31 Mar 2015
- Budgeted financial statements for 2015
- Actuarial valuation statement for 2015
- The current year reinsurance/retrocession cover notes
- Capital management policy
- Dividend policy
- 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.