Johannesburg, 11 July 2016 — Global Credit Ratings has today affirmed the national claims paying ability rating assigned to FM Re Property & Casualty (Private) Limited of BBB(ZW), with the Outlook accorded as Stable. The rating is valid until May 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to FM Re Property & Casualty (Private) Limited (“FM Re”) based on the following key criteria:
FM Re reflects a strong competitive position, with a market share of 19% in FY15. The reinsurer’s market position is supported by entrenched relationships with a number of top tier cedants in the domestic industry.
FM Re evidences sound liquidity metrics, and a well-diversified spread of banking counterparties. Claims cash coverage was recorded at 8.7 months in FY15, while cash covered technical liabilities by 0.9x. Liquidity has been supported by conservative asset allocation of retained cash, although the rise in premium debtors in FY15 restrained cash generation. Liquidity is expected to reflect similar patterns over the rating horizon, albeit with increased emphasis on improved debtor collections over the short term (as a means of mitigating cash flow stagnation).
Profitability has been measured at moderately strong levels. The underwriting margin has averaged a healthy 7% over the past three years, and has exhibited high earnings stability. This has been supported by loss ratio consistency and an improving expense ratio. Consistency in profit metrics are projected going forward.
FM Re’s capitalisation is intermediate. The international solvency margin measured at 51% at FYE15 (FYE14: 45%), albeit remaining below peer averages. Risk adjusted capitalisation is supported by a somewhat contained level of asset exposure. Management aims to maintain the international solvency margin above 40%.
The maximum net retention per risk on excess of loss remains moderately elevated relative to capital (at 3% of FYE15 capital), whilst the retrocession panel includes a number of players with intermediate credit ratings.
GCR views country risk factors to be elevated, and a systematic rating consideration applicable to insurers. Operational challenges are likely to persist given the uncertain socio-political outlook, severe liquidity strain, reduction in banking sector stability and weak macroeconomic fundamentals.
An upward movement of the rating could develop on the back of sustained profitability, coupled with a strengthening in solvency metrics. Conversely, downward rating pressure may arise from a marked deterioration in key credit protection measures, particularly driven by an erratic underwriting performance, and/or the adoption of a more aggressive investment strategy. Further, a deterioration in country risk factors continues to represent a key downside risk to reinsurers in the market.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating post dollarisation (May 2009)|
|Claims paying ability: BBB+(ZW)|
|Last rating (May 2015)|
|Claims paying ability: BBB(ZW)|
|Sector Head: Insurance Ratings|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
FM Re Property & Casualty (Private) Limited rating reports, 2009-2015
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.
FM Re Property & Casualty (Private) 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 FM Re Property & Casualty (Private) Limited with no contestation of the rating.
The information received from FM Reinsurance Limited and other reliable third parties to accord the credit rating included:
- The audited annual financial statements to 31 December 2015
- 4 years of comparative audited numbers
- Budgeted financial statements for 2016
- 2016 retrocession 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
|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 please click here
GCR affirms FM Re Property & Casualty (Private) Limited’s rating at BBB(ZW); Stable Outlook.