Johannesburg, 04 December 2014 — Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to Enterprise Insurance Company Limited of A+(GH); with the outlook accorded as Stable. The rating is valid until August 2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Enterprise Insurance Company Limited (“EIC”) based on the following key criteria:
EIC is an established top tier player in the non-life insurance market, with a relative market share of 2.8x average GWP in F13. The insurer’s business profile is viewed to have been further cemented by the recent purchase of 40% of EIC’s shares by Sanlam Emerging Markets (“SEM”). GCR views the insurer to be positioned to defend its well-entrenched position in the motor market, supported by access to property and engineering risks.
EIC is well capitalised on a risk adjusted basis, with the international solvency margin amounting to 85% in F13, and averaging 99% over the past three years. Note is taken, however, of the overall downward trend in solvency metrics recorded over the review period, with the trend expected to persist in F14. This effect has emanated from the combination of high net premium growth, and continued dividend outflows. The latter have been in relation to the organisational rearrangement relating to Enterprise Group Limited (“EGL”), and as such note is taken of capital availability at group level (noting that no dividend declarations have been forecast for F14). Furthermore, EGL’s access to financial markets, as well as SEM, provides a source of capital flexibility, which may assist in alleviating capital adequacy should growth targets be achieved as envisioned. Capital is managed primarily in line with local statutory requirements, and as such no explicit risk-based capital target measures are in place.
Cognisance is taken of the successful execution of underwriting corrective measures over the review period, with the insurer registering a continued strengthening in profit margins over the past two years. In this regard, sustaining cost efficiencies will be key to maintaining the insurer’s underwriting profitability in the highly competitive key corporate and commercial lines.
The balance sheet composition remains sound, with liquid assets representing approximately 70% of the asset base over the past two years. This has assisted in moderating capital risk and strengthening key liquidity measures. Improved liquidity metrics are expected to be maintained at high levels over the rating horizon. Note is taken of the low level of claims reserves, however, which we view to be a partial offset to balance sheet strength.
Earnings diversification is viewed to be somewhat limited. In this regard, heightened exposure to the motor class implies a degree of product risk, given the relatively high degree of underwriting volatility and systemic challenges associated with this line of business.
The regulatory reforms are anticipated to have a positive impact on the financial stability of the sector going forward. However, the extent of the benefits derived therefrom (as per other regulations already implemented) is dependent on how strictly these are enforced.
Upward movement on the rating could develop with a stable and profitable underwriting track record, and enhanced earnings diversification. This must 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 a sustained deterioration in risk adjusted capitalisation were to be evidenced, stemming from either continued premium growth strain, or an increase in investment risk. A more aggressive dividend strategy, as well as a weakening in operating performance, may also serve to reduce credit strength.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (September 2007)
Claims paying ability: AA-(GH)
Last rating (July 2013)
Claims paying ability: A+(GH)
Sector Head: Insurance
Senior Analyst: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies, Updated July 2014
EIC rating reports, 2007 – 2013.
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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/s 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(s) included the 2013 audited annual financial statements (plus four years of comparative numbers), latest Internal and/or external report to management, budgeted financial statements for 2014, year to date management accounts to June 2014, the 2014 reinsurance cover notes, and other documentation related to the rating exercise.
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.
GCR affirms Enterprise Insurance Company Limited’s rating of A+(GH); Outlook Stable.