Announcements

GCR affirms FBC Reinsurance Limited’s rating of A-(ZW); Outlook Stable

Johannesburg, 3 Jul 2015, Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to FBC Reinsurance Limited at A-(ZW); with the outlook accorded as Stable.  Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to FBC Reinsurance Limited at B; with the outlook accorded as Stable. The ratings are valid until May 2016.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to FBC Reinsurance Limited (“FBC Re”) based on the following key criteria:

FBC Re’s rating is supported by very strong capitalisation. Risk adjusted capital adequacy is viewed to be robust, underpinned by strong internal capital generation relative to insurance risk development, and supported by a low level of asset risk exposure. Similarly, the reinsurer’s international solvency margin is very strong (FY14: 91%). GCR expects risk-based capitalisation to remain solid going forward, on the back of sustained profit retention and a well-managed risk base.

Earnings capacity is viewed to be robust, and represents a key input to the rating. The underwriting margin increased to 17.3% in FY14 (FY13: 11.2%, FY12: 8%), bolstered by sound cost control and a contained claims experience. Return on equity has exhibited similarly strong metrics, having averaged 25% over the past 4 years. With underlying earnings drivers anticipated to persist, profitability is expected to be sustained at very strong levels going forward. In addition, FBC Re’s rating is supported by a solid competitive positon, with the reinsurer reflecting the third largest market share in the industry (FY14: 15.5%). This positon has been secured by entrenched relationships with top tier insurers and intermediaries, and is expected to be sustained going forward.

Asset quality is viewed to be strong, with the high weighting in liquid assets (81% of total investments) mitigating exposure to market risks. FBC Re’s consistency in applying a conservative asset management strategy implies continuation of asset quality strength going forward. Asset quality is supported by a track record of disciplined premium debtor management. Simultaneously, FBC Re has recorded very strong and consistently increasing liquidity metrics, underpinned by healthy cash flow generation. Cash claims coverage registered at 27 months in FY14 (FY13: 28 months) while cash cover of technical liabilities amounted to 1.9x. However, the reinsurer evidences counterparty concentration risk, owing to the bulk of cash (94%) being kept within the FBC Group.

Retrocession protection is placed with counterparties carrying moderately strong aggregated credit strength. Maximum net retention per risk and event amounts to USD0.3m, corresponding to an intermediate exposure level at 3% of FYE14 capital.

As the bulk of FBC Re’s assets are domiciled in Zimbabwe, the international rating is significantly constrained by sovereign risk. Although the country has no sovereign rating, it has previously defaulted on payments to international financial institutions.

In view of the industry risk characteristics embodied within the Zimbabwean operating environment, the industry rating ceiling has been capped at A-(ZW) (single A minus). As such, an upgrade of the national scale rating is considered unlikely in the absence of a review of key industry risk factors. Downward rating pressure may arise from persistent deterioration in key solvency and liquidity metrics, and/or a sustained deterioration in underwriting profitability.

NATIONAL SCALE RATINGS HISTORY

  INTERNATIONAL SCALE RATING HISTORY
Initial rating (post US dollarization May 2009)   Initial rating (August 2012)
Claims paying ability: A-(ZW)   Claims paying ability: B
Outlook: Evolving   Outlook: Stable
     
Last rating (May 2014)   Last rating (May 2014)
Claims paying ability: A-(ZW)   Claims paying ability: B
Outlook: Stable   Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst

Secondary Analyst

Marc Chadwick

Kudzai Siwawa

Sector Head: Insurance Ratings

Junior Analyst

(011) 784-1771

(011) 784-1771

chadwick@globalratings.net

siwawa@globalratings.net

Committee Chairperson

Sheri Few

Senior Analyst

(011) 784-1771

few@globalratings.net

Secondary Analyst

Marc Chadwick

Kudzai Siwawa

Sector Head: Insurance Ratings

Junior Analyst

(011) 784-1771

(011) 784-1771

chadwick@globalratings.net

siwawa@globalratings.net

Committee Chairperson

Sheri Few

Senior Analyst

(011) 784-1771

few@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Insurance Companies, updated July 2014

FBC Reinsurance Limited rating reports, 2009-2014

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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

FBC Reinsurance 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 ratings have been disclosed to FBC Reinsurance Limited with no contestation of the rating.

The information received from FBC Reinsurance Limited and other reliable third parties to accord the credit rating included:

  • The 2014 audited annual financial statements
  • 4 years of comparative audited numbers
  • Unaudited interim results as per 31 March 2015
  • Budgeted financial statements for 2015
  • 2015 retrocession cover notes
  • Other related documents.

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.


GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY

Assets The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’
Balance Sheet An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.
Capacity The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
Commission A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.
Insurer The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.
Interest Money paid for the use of money.
Liquidity The ability of an insurer to convert its assets into cash to pay claims if necessary.
Loss Ratio The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.
Premium The price of insurance protection for a specified risk for a specified period of time.
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.
Reserve An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.
Retention The net amount of risk the ceding company keeps for its own account
Risk Uncertainty as to the outcome of an event when two or more possibilities exist.
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.
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 utilised please click here

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