Announcements

GCR affirms CIC Life Assurance Limited’s rating at A+(KE); Outlook Stable.

Johannesburg, 31 May 2018 — Global Credit Ratings has today affirmed the national scale financial strength rating assigned to CIC Life Assurance Limited of A+(KE), with the outlook accorded as Stable. The rating is valid until May 2019.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to CIC Life Assurance Limited (“CIC Life”) based on the following key criteria:

The stable outlook follows the relative stabilisation in risk adjusted capitalisation and operating profitability metrics. In this respect, the operating margin equated to 6% in FY17 (FY16: 4%), consistent with the prior three year average. Furthermore, the ROaE tracked the prior four average at 11% in FY17 (FY16: 6%). Despite the moderation relative to the start of the review period, earnings capacity is likely to be assessed at rating sufficient levels over the rating horizon, with the operating margin expected to register within the 5-8% range.

Following the recent stabilisation in capitalisation metrics, GCR views CIC Life’s risk adjusted capitalisation to be sufficient to cater for the current levels of underwriting and market risk. Note is, however, taken of the execution risk associated with achieving the high growth targets, while managing dividend distributions within a more formalised capital management strategy. Reinsurance counterparties reflect a strong aggregate level of credit quality, with maximum per risk and event deductibles trending within conservative levels, at less than 1% of FY17 capital.

Growth in policyholder and investment liabilities (driven largely by the rapid development in the deposit administration liabilities) continued to surpass the progression in investment assets. Consequently, investment assets coverage of policyholder and investment liabilities sustained a downward trend, equating to 1.4x at FY17 (FY16: 1.5x; FY13: 2.2x). Cash coverage of policyholder liabilities nevertheless remained adequate, at 1.4x at FY17 (FY16: 1.3x), with liquidity metrics expected to trend within a similar range over the outlook horizon.

Premium growth at gross level (inclusive of pension contributions) trailed industry growth, advancing by a compound annual growth rate (CAGR) of 13% over the review period relative to the industry growth rate of 17% recorded over the corresponding period. Nonetheless, CIC Life continues to operate within the top tier market, being the fifth largest participant in the long term business in FY17, with a relatively stable market share of 5.9% (FY16: 6.0%). Looking ahead, GCR expects CIC Life to maintain its position within the market, underpinned by its established brand and scope for further penetration and cross selling into the cooperative segment.

Overall, the expected future cash flows from asset maturities exceeded the expected cash flow requirements for maturing liabilities except for the 12 to 36-month maturity bucket. However, on a per product basis, there were pockets of concentration in certain asset duration buckets, relative to the underlying liability profile. In this regard, the adoption of a new asset allocation strategy is aimed at addressing asset liability mismatches, which together with frequent portfolio monitoring and rebalancing, is expected to enhance the asset-liability matching framework.

A sustained improvement in earnings capacity, with risk adjusted capitalisation and other credit protection metrics maintained at rating appropriate levels could result in a positive rating action. Conversely, negative rating pressure will likely follow a sustained reduction in risk adjusted capitalisation and earnings relative to expectations.

NATIONAL SCALE RATINGS HISTORY
 
Initial rating (May 2013)
Financial strength: A+(KE)
Outlook: Stable
 
Last rating (May 2017)
Financial strength: A+(KE)
Outlook: Negative

ANALYTICAL CONTACTS

Primary Analyst  
Tichaona Nyakudya  
Credit Analyst  
(011) 784 – 1771  
tichaonan@globalratings.net  
   
Committee Chairperson

 
Yvonne Mujuru  
Sector Head: Insurance Ratings  
(011) 784 – 1771  
ymujuru@globalratings.net  

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Long Term Insurance Companies, updated May 2018

CIC Life rating reports, 2013-2017

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

CIC Life Assurance 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 has been disclosed to CIC Life Assurance Limited with no contestation of the rating.

The information received from CIC Life Assurance Limited and other reliable third parties to accord the credit rating included:

  • The draft annual financial statements to 31 December 2017
  • 4 years of comparative financial statements to 31 December
  • Unaudited management accounts to 28 February 2018
  • Budgeted financial statements to 31 December 2018
  • 2018 reinsurance programme summary
  • Draft financial condition report as at 31 December 2017
  • Draft actuarial valuation report as at 31 December 2017
  • Other related documents.

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

Assets A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Balance Sheet Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
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 Adequacy A measure of the adequacy of an entity’s capital resources in relation to its risks.
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.
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.
Execution Risk The risk that a company’s business plans will not be successful when they are put into action.
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.
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.
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.
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 An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Yield Percentage return on an investment or security, usually calculated at an annual rate.

For a detailed glossary of terms, please click here

GCR affirms CIC Life Assurance Limited’s rating at A+(KE); Outlook Stable.

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