Global Credit Ratings has accorded the above credit rating(s) on FBC Reinsurance Limited based on the following key criteria:
FBC Reinsurance Limited (“FBC Re”) emanated from a merger with the FBC Bank reinsurance unit in 2004. FBC Re is a wholly owned subsidiary of FBC Holdings Limited (“FBCH”). FBCH is, in turn, the investment holding company of the FBC Group, which represents diverse financial institutions that span a Commercial Bank, Building Society, Reinsurance Company and a Stockbroking unit. As at FYE12, the National Social Security Authority held a 22% stake in the ZSE listed group. Other shareholders include Tirent Investments (Pvt) Limited (5%) and Cashgrant Investments (Pvt) Limited (5%).
The ratings recognise FBC Re’s favourable strategic position as one of the leading reinsurance companies in Zimbabwe, underpinned by strong branding, previously demonstrated shareholder support and linkages with top tier insurers. Furthermore, on the back of sound operating profits and improved working capital management, cash & equivalents were reported noticeably higher at FYE12, supportive of sound liquidity metrics. However, significant concentration risk is inherent in the placement of the bulk of cash holdings (86% at FYE12) with two FBCH subsidiaries. In addition, international solvency is expected to report a retracement to 47% in F13 (F12: 59%), owing to robust premium growth projections and increased retention.
The international rating remains significantly constrained by sovereign risk, given that the insurer’s assets are almost entirely vested in Zimbabwe.
In view of the industry risk characteristics embodied within the Zimbabwean operating environment, the national scale rating ceiling for the industry has been capped at A-(ZW), and accordingly, upward movement of the rating is deemed unlikely over the short to medium term. Downward rating pressure may emanate from persistent downward pressure on key solvency and liquidity metrics. In this regard, a minimum solvency margin of between 45% and 50%, coupled with sustained levels of liquidity metrics, is required to maintain the current rating. Note was also taken of the highly uncertain socio-political outlook, which is likely to exacerbate challenges within the operating climate, constraining capital inflows and economic growth. Should this deteriorate further, the rating ceiling of the insurance sector as a whole would likely be reviewed.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (May/2009)||Initial rating (May/2009)|
|Claims paying ability: A-(ZW)||Claims paying ability: n.a.|
|Outlook: Evolving||Outlook: n.a.|
|Last rating (Aug/2012)||Last rating (Aug/2012)|
|Claims paying ability: A-(ZW)||Claims paying ability: B|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Secondary Analyst|
|Marc Joffe||Damien Dube|
|Sector Head: Insurance||Junior Analyst|
|+27 11 784 1771||+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Criteria for Rating Reinsurance Companies
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
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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 Reinsurance Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to FBC Reinsurance Limited with no contestation of the rating.
The information received from East Africa Reinsurance Company Limited and other reliable third parties to accord the credit rating included the latest audited annual financial statements (plus three years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, the current year retrocession cover notes, debtors provisioning policy document, ERM processes/framework, reserving methodologies, capital management policy.