Johannesburg, 06 Sep 2013 — 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(s) are valid until 7/2014.
Global Credit Ratings has accorded the above credit rating(s) on Enterprise Insurance Company Limited based on the following key criteria:
The rating recognises EIC’s position as a top tier insurer in the Ghanaian market, and one of the three largest insurers servicing the private market. The insurer is relatively well capitalised, although cognisance is taken of the reduction in the insurer’s forecast solvency position to a lower 87% at FYE13. The reduction in the solvency buffer is viewed in conjunction with the insurer’s high single stock exposure, very low reserving levels and high CAT deductible. Accordingly, the insurer must maintain international solvency above 80%, while sustaining the recent strong operating performance, in order to sustain capital adequacy at a level commensurate with the current rating level (all else equal). Note is taken of the group’s access to financial markets as a means of providing capital flexibility in adverse conditions, although a stressed financial market scenario may see capital erosion due to listed equity concentration, as well as limited investor appetite.
EIC continues to exhibit one of the highest earned loss ratios in the industry (despite very low levels of reserving). As such, in the absence of an improvement in portfolio quality, or an increase in premium rates to more risk-appropriate levels, the maintenance of the current pricing expense arrangement with the group is crucial to underwriting stability going forward. EIC’s relatively strong debtor management is favourably viewed, with the insurer carrying limited exposure to aged debtors. Liquidity is further bolstered by the high weighting of cash and equivalents, with key liquidity metrics supporting the rating.
Cognisance is taken of the limited diversification within the insurer’s risk premium base, particularly in light of systemic challenges in motor (albeit an industry wide trend). The regulatory reforms in debtors provisioning and those expected in capital and reporting standards 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.
Factors that could trigger a positive rating action include the development of a stable and profitable underwriting track record, and enhanced earnings diversification. This must be accompanied by risk appropriate solvency levels, with a stringent capital management policy, and the maintenance of a prudent investment profile. A downgrade may arise if a sustained deterioration in the operating performance was evidenced, commensurate with the solvency margin falling below GCR’s comfort level for this rating on a sustained basis, and/or a weakening in liquidity metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2007)|
|Claims paying ability: AA-(GH)|
|Last rating (Aug/2012)|
|Claims paying ability: A+(GH)|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
|Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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/RATING-SCALES-DEFINITIONS. 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/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 included the 2012 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, unaudited year to date management accounts to 31 March 2013, and the current year reinsurance cover notes.