Johannesburg, 4 June 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to FMRe Property & Casualty of BBB-(ZW); with the outlook accorded as Positive. The rating(s) are valid until 5/2014.
Global Credit Ratings has accorded the above credit rating(s) on FMRe Property & Casualty based on the following key criteria:
FM Re Property & Casualty (“FMRe”) was incorporated in 2003 as a specialist reinsurer focussing on the full spectrum of non-life business lines. The reinsurer is a 100% owned subsidiary of Africa First Renaissance Corporation Limited (“Afre”), a financial services investment holding company. Following a group restructuring and rights issue in 2012, Afre is now 51% owned by the National Social Security Authority (“NSSA”), with Capital Bank holding a further 20%. The bulk of remaining shares are publicly held. Afre is listed on the ZSE and had a market capitalisation of US$38m as at 9 April 2013.
Of the funds raised through the rights issue, US$0.9m flowed to FM Re in F12, albeit key solvency metrics remained little changed over the previous year, and remain below the industry average. Cognisance was, however, taken of the fact that the NSSA has provided Afre with a letter of support, undertaking to meet legally admissible group and related subsidiary claims. Moreover, capital risk receded noticeably during F12, following the share issue and repayment of a US$1m intercompany loan to FMRe. This, together with a more conservative investment stance underpinned a substantial increase in cash & equivalents and key liquidity measures. Furthermore, banking counterparty risk is deemed moderate, with the largest entity holding 19% of FYE12 cash holdings. Recent initiatives aimed at strengthening corporate governance and risk management were also favourably viewed. Operationally, however, underwriting margins remain under pressure, exacerbated by an elevated delivery cost structure. This serves to undermine margins in higher claiming years.
Upward movement of the rating could develop on the back of a demonstrated trend of sustainable underwriting profitability, achieved through consistent cost rationalisation, underpinning increased capital and solvency. Conversely, downward pressure on the rating could emanate from persistent pressure on solvency through an inability to accumulate capital reserves at a rate commensurate with premium growth. In this regard, GCR would not expect solvency to fall below 45% to maintain the current rating. The highly uncertain socio-political outlook 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
Initial rating (Nov/2009)
Claims paying ability: BBB+(ZW)
Last rating (May/2012)
Claims paying ability: BBB-(ZW)
Sector Head: Insurance
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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.
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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.
FMRe 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 FMRe with no contestation of the rating.
The information received from FMRe 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.
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