Johannesburg, 1 September 2016 — 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 2017.
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’s competitive position is viewed to be very strong. In this respect, the insurer held an estimated market share of 12%, representing premiums at 3x the industry average. In light of the company’s solid brand recognition and widening distribution network, GCR expects EIC’s market position to be maintained over the rating horizon.
Liquidity measures at very strong levels, as evidenced by very high claims cash cover and net technical provision cover metrics of 19 months and 2x respectively at FYE15 (FYE14: 25 months and 3x). This key rating strength has been underpinned by the insurer’s very conservative asset allocation strategy, with all investments placed in cash and equivalents. GCR expects the company’s liquidity metrics to continue to measure within a strong range.
The insurer has reflected very strong capitalisation. The international solvency margin amounted to 70% at FYE15, while very low market risk exposures and well contained underwriting risks supported very strong risk adjusted capitalisation. EIC has forecast a strong solvency margin in FY16. However, a continued reduction in the metric (which averaged 82% between FY11 and FY14) on the back of very high dividend payouts, may result in a moderation in capital strength over the rating horizon.
EIC’s earnings capacity is viewed to be strong, underpinned by developing scale efficiencies and a healthy investment return (a function of the sizeable quantum of investment assets). In this respect, the insurer’s operating margin has averaged a strong 21% over the review period. GCR expects overall earnings to remain strong, supported by a normalisation in the underwriting result, coupled with high yields generated from the insurer’s sizeable balance sheet.
The reinsurance panel reflects an intermediate degree of credit strength, although net exposures to capital are viewed to be high, representing a relative rating weakness.
Upward movement on the rating could develop with a strengthening in earnings, coupled with the maintenance of very strong capitalisation and a prudent investment profile. Conversely, negative rating sensitivities pertain to a reduction in credit protection metrics, coupled with a lowering in the insurer’s earnings or business profile.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2007)|
|Claims paying ability: AA-(GH)|
|Last rating (December 2015)|
|Claims paying ability: A+(GH)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Munyaradzi Mushure|
|Sector Head: Insurance Ratings||Junior 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 2016
Enterprise Insurance Company Limited rating reports, (2007-2015)
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.
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 2015
- Unaudited year to date results to 30 June 2015
- Budgeted financial statements to December 2016
- Financial condition report 2015
- 2016 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
|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.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|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 (“ISR”)||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.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|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.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short Term||Current; ordinarily less than one year.|
|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.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a detailed glossary of terms please click here