Johannesburg, 21 September 2017 — Global Credit Ratings has today 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 2018.
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 13% in FY16, representing premiums of 3x the industry average, with growth outpacing the industry over the past two years. In light of the company’s solid brand recognition and wide 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 23 months and 2x respectively at FY16 ( FY15: 19 months and 2x). This key rating strength has been underpinned by fairly steady operational cash flow generation, coupled with 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.
EIC’s risk adjusted capitalisation has been measured at very strong levels, supported by very low market risk exposures and well contained underwriting risks. Accordingly, the international solvency margin amounted to a fairly high 59% at FY16. However, a continued reduction in the metric (which averaged 95% between FY11 and FY14) on the back of high dividend payouts may result in a moderation in capital strength over the rating horizon, noting a dilution in solvency to 48% in BY17.
The insurer’s earnings capacity has been strong, underpinned by cost 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 robust 26% over the review period. GCR expects overall earnings to remain strong, supported by sound underwriting profitability, coupled with high yields generated from the insurer’s sizeable balance sheet. Cognisance is, however, taken of the relatively high property net deductible (which is high on both per risk and CAT basis), which exposes the insurer to continued potential earnings volatility.
Positive rating action may stem from a sustained strengthening in earnings capacity and/or capitalisation. Conversely, downward rating pressure may follow a sustained reduction in capital strength stemming from continued high dividend payouts and/or weakened earnings capacity.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2007)|
|Claims paying ability: AA-(GH)|
|Last rating (August 2016)|
|Claims paying ability: A+(GH)|
|Primary Analyst||Committee Chairperson|
|Munyaradzi Mushure||Yvonne Mujuru|
|Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2017
Enterprise Insurance Company Limited Rating Reports, 2007 – 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 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 2016
- Unaudited year to date results to 30 June 2017
- Budgeted financial statements to December 2017
- Financial condition report 2016
- 2017 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
|Balance Sheet||Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|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.|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Deductible||The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|Experience||A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time period.|
|Financial Flexibility||The company’s ability to access additional sources of capital funding.|
|International Scale Rating LC||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.|
|Investment Income||The income generated by a company’s portfolio of investments.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|Loss||The happening of the event for which insurance pays.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|Net Profit||Trading/operating profits after deducting the expenses detailed in the profit and loss account such as interest, tax, depreciation, auditors’ fees and directors’ fees.|
|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|
|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.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Securities||Various instruments used in the capital market to raise funds.|
|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.|
|Stop Loss||Any provision in a policy designed to cut off an insurer’s losses at a given point. In effect, a stop loss agreement guarantees the loss ratio of the insurer.|
|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 Enterprise Insurance Company Limited’s rating of A+(GH); Outlook Stable.