Announcements

GCR affirms Continental Reinsurance Company Limited’s rating of A-(BW); Outlook Stable

Johannesburg, 02 March 2017 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Continental Reinsurance Company Limited of A-(BW), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Continental Reinsurance Company Limited of BB, with the outlook accorded as Stable. The ratings are valid until December 2017.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Continental Reinsurance Company Limited (“CRe Botswana”) based on the following key criteria:

CRe Botswana’s capitalisation measured at a moderately strong level, and is a key rating consideration. Capital generation is expected to be sustained by a small but consistent stream of retained income, underpinned by underwriting profitability. In this respect, capital build is expected to sustain the international solvency margin above 80% over the rating horizon. Accordingly, risk adjusted capitalisation is projected to measure at rating adequate levels (while credit risk relating to premiums is noted). GCR expects medium term capitalisation to be managed along the group’s capital management framework. Furthermore, a degree of comfort is derived from expressed shareholder support in case of growth strain on capital.

Further rating support is derived from very strong liquidity. This is a result of a very conservative investment strategy, which keeps almost all financial assets in cash and equivalents. Accordingly, cash coverage of technical liabilities registered at a robust 2.2x, and the coverage of average monthly claims equated to a very high 24 months at FYE16 (FYE15: 39 months). Going forward, cash coverage of technical liabilities is expected to be maintained within a very strong range.

CRe Botswana’s earnings capacity evidences potential to strengthen from the current subdued level to a moderate level over the rating horizon. Underwriting margins were restricted to a three year average of 3% (measuring well below the targeted 7%-10% range), due to elevated impairments of premium receivables. In this respect, potential earnings from well contained headline operating and loss metrics were materially impeded by premium impairments (FY16: BWP3.2m). Similarly, net profitability has been suppressed by transitory adverse movements in USD holdings and related very low interest rates. In this respect, RoE measured at a weak level of 4% in FY16, and is expected to remain fairly low (around 7%) in FY17. Accordingly, management’s ability to demonstrate a sustained strengthening in earnings capacity, primarily through a material improvement in the performance of the credit book, is a key rating consideration.

CRe Botswana’s business profile is intermediate. Gross premiums are well spread across at least five countries that exhibit fairly low association of economic trends. While this is partially offset by a concentrated business mix, which reflects a slant towards the property portfolio (79% of gross premiums), auxiliary lines have served as important diversifiers, contributing significantly to earnings stability. GCR expects the reinsurer’s business profile to improve on the back of increased facultative cover on engineering business (in line with expected economic trends in the region) and increased participation on treaty business across the market spectrum. Retrocession cover is provided by leads with high credit strength. The maximum retention per risk and event is bought down to USD1.5m, which corresponds to a very high 21% of FYE16 capital respectively.

CRe Botswana is viewed to benefit from potential capital support from its parent, Continental Reinsurance Plc (based in Nigeria). In this respect, the intended strategic execution of CRe Botswana’s growth targets is viewed to be aligned with the group’s regional diversification objectives. Furthermore, the international scale rating takes into account Botswana’s sovereign credit rating of A-.

Positive rating movement could develop over the medium term if the reinsurer realises improvements in earnings capacity and continues to meet capitalisation targets, while managing down risks relating to receivables. Downward rating pressure may follow low earnings relative to expectations, limited premium traction, a worsening in premium collection, and either actions (including dividend extraction) inconsistent with the attainment of capitalisation targets or a reduction in the effectiveness of the support framework.

NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATINGS HISTORY
Initial/last rating (March 2016) Initial/last rating (March 2016)
Claims paying ability: A-(BW) Claims paying ability: BB
Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

Primary analyst
Godfrey Chingono
Primary Analyst
(011)784-1771
godfreyc@globalratings.net
 
Committee Chairperson
Marc Chadwick
Sector Head: Insurance Ratings
(011)784-1771
chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2016

Criteria for Rating Start-up and Newly Established Insurance Companies, updated July 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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Continental Reinsurance Company 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 ratings have been disclosed to Continental Reinsurance Company Limited with no contestation of the rating.

The information received from Continental Reinsurance Company Limited and other reliable third parties to accord the credit rating included:

  • Draft annual financial statements to December 2016
  • The audited annual financial statements to December 2015
  • Two years of comparative audited numbers
  • Budgeted financial statements to December 2017
  • Statutory Annual Return to 31 December 2015
  • 2017 reinsurance cover summary
  • Other related documents.

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.

GLOSSARY OF TERMS/ACRONYMS 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.
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.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
Commission A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.
Insurer The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.
Interest Money paid for the use of money.
Liquidity The ability of an insurer to convert its assets into cash to pay claims if necessary.
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.
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.
Premium The price of insurance protection for a specified risk for a specified period of time.
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.
Retention The net amount of risk the ceding company keeps for its own account
Risk Uncertainty as to the outcome of an event when two or more possibilities exist.
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.
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.

For a detailed glossary of terms please click here

GCR affirms Continental Reinsurance Company Limited’s rating of A-(BW); Outlook Stable

image_pdfPDF View

Leave a Reply



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.