Johannesburg, 18 September 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Enterprise Insurance Company Limited at A+(GH), with the outlook accorded as Stable. The rating is valid until August 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Enterprise Insurance Company Limited (“EIC”) based on the following key criteria:
EIC is a well-entrenched top tier player in the market, and has managed to defend its market position despite increasing competitive pressures. In FY14, the insurer held an estimated GWP market share of 11%, registering premiums at 3x the industry average. This position has been sustained by good brand recognition and a widening distribution network.
The insurer’s conservative investment allocation strategy is supportive of a high level of asset quality. This further underpins sound liquidity measures, which represents a rating strength. Management intends to maintain a conservative investment mix, thereby preserving balance sheet strength.
EIC is well capitalised, with the international solvency margin amounting to 80% in FY14. Despite the downward trend in international solvency metrics over the review period, risk adjusted capitalisation levels remain rating adequate. However, continued compression in solvency levels may be negatively viewed in the absence of a risk based assessment of capital adequacy.
Profitability has been measured at intermediate levels. Note is, however, taken of the underwriting margin compression evidenced recently, with profitability sustained by scale efficiencies. In this regard, the ability to successfully implement corrective measures will be a key rating consideration over the short to medium term.
EIC’s reinsurance counterparty panel reflects a moderate to strong degree of credit strength, however exposures to capital are viewed to be very high on a risk and event basis, representing a relative rating weakness. Notwithstanding the large proportion of short tail business within the retained risk base, potentially insufficient reserving represents a key risk to EIC.
The industry remains susceptible to ongoing economic constraints, which may continue to pressure growth and the ability to re-rate underperforming portfolios of business.
Upward movement on the rating could develop with a stable and profitable underwriting track record, and enhanced earnings diversification. This would need to be accompanied by a strengthening in risk adjusted capitalisation levels, with a stringent capital management policy, and the maintenance of a prudent investment profile. A downgrade may arise if further deterioration in risk adjusted capitalisation were to be evidenced, stemming either from weakened operating performance or aggressive dividend distributions.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2007)|
|Claims paying ability: AA-(GH)|
|Last rating (September 2014)|
|Claims paying ability: A+(GH)|
|Primary analyst||Secondary Analyst|
|Susan Hawthorne||Kudzai Siwawa|
|Senior Credit Analyst||Junior Credit Analyst|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Enterprise Insurance Company Limited rating reports (2007-2014)
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.
Enterprise 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 Enterprise Insurance Company Limited with no contestation of the rating.
The information received from Enterprise Insurance Company Limited and other reliable third parties to accord the credit rating included:
- The audited annual financial statements to December 2014
- 4 years of comparative audited numbers
- Unaudited year to date results to 30 June 2015
- Budgeted financial statements to December 2015
- 2015 reinsurance cover notes
- 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||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