Johannesburg, 10 May 2018– Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to FBC Insurance Company Limited of A-(ZW), with the outlook accorded as Stable. The rating is valid until May 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to FBC Insurance Company Limited (“FBC Insurance”) based on the following key criteria:
FBC Insurance’s risk adjusted capitalization registered within a sound range, supported by consistent internal capital generation. This was further supported by relatively well contained underwriting risk, limited market exposure and more recently a material reduction in aged debtors. Accordingly, the adjusted international solvency margin, excluding debtors in excess of 180 days, equated to a higher 82% at FY17 (FY16: 56%). Risk adjusted capitalisation is expected to remain at similar levels over the rating horizon, supported by the capital management strategy in place, with additional capital available from existing shareholders to support growth targets. Furthermore, maximum net deductibles per risk and event are limited at a conservative level relative to capital, while the reinsurance panel reflects an intermediate aggregate level of credit strength.
Earnings capacity is viewed to be strong, underpinned by healthy underwriting profitability, coupled with improved investment returns in FY17. In this regard, the five year aggregated underwriting margin equated to 13% (FY17: 7%; FY16: 11%), while the investment yield registered at a higher 39% in FY17 (FY16: 8%; review period: 16%). Underwriting performance may register within a moderately strong range over the outlook horizon, underpinned on expected increase in claims, partially offsetting increased operational efficiencies. GCR’s view of reserving sufficiency is positively impacted by the certification of reserve levels by a qualified external actuary.
Liquidity metrics moderated, albeit registering within a strong range. In this respect, cash covered net technical provisions by 1.8x at FY17 (FY16: 2.5x), while claims cash coverage equated to 10 months (FY16: 14 months). Exposure to listed equities is budgeted to increase in FY18, albeit the insurer’s high cash buffers are expected to preserve liquidity strength within a strong range over the rating horizon.
FBC Insurance reflects a moderately strong business profile, supported by brand alignment with FBC Holdings (“FBCH” or “the group”) as well as diversified earnings. In this respect, the insurer’s estimated share of short-term industry premiums equated 9% in FY17 (FY16: 9%), while revenue is mainly spread across three lines of business. Going forward, the combination of strong brand recognition and an enhanced product offering has potential to improve the business profile over the medium term.
GCR views country risk factors to be elevated, and a systematic rating consideration applicable to insurers. Operational challenges are likely to persist over the rating horizon, albeit with positive changes in the socio-political outlook and macroeconomic fundamentals possible over the medium term, should the political situation stabilise.
The rating currently matches the national scale ceiling applicable to entities operating within the Zimbabwean insurance industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. Conversely, downward rating pressure may arise from deterioration in key credit protection measures, a sustained weakening in earnings capacity and/or reduction in asset quality.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (August 2012)|
|Claims paying ability: BB+(ZW)|
|Last rating (July 2017)|
|Claims paying ability: A-(ZW)|
|Primary Analyst||Secondary Analyst|
|Yvonne Mujuru||Sylvia Mhlanga|
|Sector Head: Insurance Ratings||Credit Analyst|
|(011) 784 – 1771||(011) 784 – 1771|
|Senior Credit Analyst|
|(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
Eagle Insurance Company Limited rating reports, 2012-2016
FBC Insurance rating report, 2017
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.
FBC 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 FBC Insurance Company Limited with no contestation of the rating.
The information received from FBC Insurance Company Limited and other reliable third parties to accord the credit rating included:
- The audited annual financial statements to 31 December 2017
- 4 years of comparative audited numbers
- Unaudited interim results to 31 March 2018
- Budgeted financial statements for 2018
- 2018 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.
|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 more detailed glossary of terms, please click here
GCR affirms FBC Insurance Company Limited’s rating of A-(ZW); Outlook Stable.