Johannesburg, 02 August 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Eagle Insurance Company Limited of A-(ZW), with the outlook accorded as Stable. The rating is valid until July 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Eagle Insurance Company Limited (“Eagle”) based on the following key criteria:
Eagle’s earnings have been maintained at very strong levels, with underwriting margins and return on equity having averaged 15% and 28% respectively over the last five years. This has been supported by core products evidencing high technical profitability, providing the insurer with a level of comparative earnings strength. Strong earnings are expected in FY16, with the insurer benefiting from continued traction in accident products, supported by growth in high margin portfolios, and remedial actions being taken in motor.
The insurer has evidenced a steady capital build from operations throughout the review period, facilitating a consistent upward trajectory in the international solvency margin. The metric strengthened to 63% in FY15 (FY14: 55%), with strong risk adjusted capitalisation supported by limited exposure to market risk. GCR expects capital strength to be maintained over the rating horizon.
Eagle’s liquidity is assessed at very strong levels, which are expected to be maintained over the rating horizon. The insurer has pursued a conservative investment policy since FY13, resulting in the accumulation of healthy cash balances. In this respect, liquidity metrics registered at higher levels in FY15, with the cash cover of average monthly claims and technical provisions measuring at 15 months (FY14: 14 months) and 2.5x (FY14: 1.8x), respectively. A combination of strong operating cash flows and a conservative investment philosophy is expected to preserve liquidity metrics over the rating horizon. However, the insurer evidences counterparty concentration risk, owing to the bulk of cash (95%) being kept within the FBC Group.
Competitive positioning is considered to be strong, with Eagle’s market share measuring at 8.6% in FY15. The insurer’s business profile is viewed to be buoyed by competitive participation in specialised lines, as reflected by strong uptake in accident and, more recently, guarantee products. Going forward, the insurer’s increased targeting of niche products is aimed at providing differentiation to the earnings stream, although the increasing level of aggregated product risk is noted.
Material counterparties on the reinsurance programme evidence moderate aggregate credit strength, with maximum exposure per risk and event averaging at a conservative 1% of capital over the past two years.
GCR views country risk factors to be elevated, and a systematic 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.
Eagle’s national scale rating currently matches GCR’s rating ceiling applicable for the Zimbabwean market. Conversely, negative ratings pressure could arise from a sustained reduction in profitability which reduces risk based capitalisation. Furthermore, a downgrade could result from a marked deterioration in credit protection metrics of banking counterparties. Should the economic or socio-political outlook deteriorate further, the rating ceiling for the insurance sector may be reviewed.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (August 2012)|
|Claims paying ability: BB+(ZW)|
|Last rating (July 2015)|
|Claims paying ability: A-(ZW)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Godfrey Chingono|
|Sector Head: Insurance Ratings||Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Eagle rating reports, 2012-2015
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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Eagle Insurance 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 rating has been disclosed to Eagle Insurance Company Limited with no contestation of the rating.
The information received from Eagle Insurance Company Limited and other reliable third parties to accord the credit rating included:
- Audited financial results as per 31 December 2015
- 4 years of comparative audited numbers
- Unaudited interim results as per 31 March 2016
- Budgeted financial statements for 2016
- 2016 reinsurance notes
- Actuarial valuation report for 2015
- 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
|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 Eagle Insurance Company Limited’s rating of A-(ZW); Stable Outlook.