Announcements

GCR affirms GA Angola Seguros S.A’s rating of A+(AO); Outlook Stable

Johannesburg, 3 Jul 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to GA Angola Seguros S.A. of A+(AO); with the outlook accorded as Stable. The rating is valid until June 2016.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to GA Angola Seguros S.A. (“GA Angola”) based on the following key criteria:

GA Angola’s profitability has been measured at very strong levels, recording an average underwriting margin of 15% over the review period. Profitability has been supported by strong technical expertise and favourable profiles of risks on which the insurer participates. GCR views the track record of underwriting profitability, coupled with expectations of enhanced scale efficiencies, to be indicative of earnings capacity over the rating horizon.

The insurer is one of the largest players in the Angolan insurance market, with an estimated market share ranging between 15%-20% over the review period. The market position is supported by strong branding, well entrenched corporate relationships and high service level offerings. GCR expects GA Angola to defend its top tier market position over the rating horizon, in the face of an increasingly competitive and congested backdrop.

GCR expects liquidity metrics to remain within a strong range over the rating horizon, supported by the conservative investment strategy. Cash covered net technical liabilities by a strong 3.2x at FYE14 (FYE13: 1.8x), while claims cash coverage equated to 79 months (FY13: 42 months). Cognisance is taken of the degree of currency risk due to the large weighting of USD call investments in the portfolio, given that the insurer reports in local currency.

The insurer is viewed to reflect healthy, and improving, risk adjusted capitalisation, underpinned by robust capital generation coupled with containment of underwriting and asset risk exposure. This trend is expected to persist going forward, with capital growth in particular expected to benefit from increased profit volumes.

GA Angola’s earnings diversification is viewed to be moderate, with three lines of business accounting for more than 10% of gross premiums. Cognisance is taken of the presence of high-value multi-national risks, which result in a fair degree of volatility in GA Angola’s premium composition. In terms of the latter, the sizeable premium contribution from the largest policyholder represents a medium term risk to revenue. This is partially offset by the favourable profitability of select portions of business within this portfolio, which GCR views the insurer to be well positioned to defend.

Reserving has been measured at high levels over the review period and is expected to be sustained over the medium. Reserving is supported by a fairly sophisticated framework, derived from a fully integrated underwriting system and external technical support.

The rating may be upgraded if the insurer evidences a material strengthening in competitive positioning (by way of increased market share and enhanced diversification), while profitability is maintained at strong levels. Furthermore, risk adjusted capitalisation could lead to positive rating movement. Conversely, a downgrade could result from a persistent deterioration in earnings capacity, coupled with capital adequacy contracting below expectations and an increase in asset risk.

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (August 2007)    
Claims paying ability: BBB+(AO)    
Outlook: Stable    
     
Last rating (October 2014)    
Claims paying ability: A+(AO)    
Outlook: Stable    

ANALYTICAL CONTACTS

Primary Analyst   Committee Chairperson
Yvonne Masiku   Marc Chadwick
Analyst   Sector Head: Insurance Ratings
(011) 784-1771   (011) 784-1771
ymasiku@globalratings.net   chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Insurance Companies, updated July 2014

GA Angola rating reports, 2007 – 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 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.

GA Angola Seguros S.A. 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 GA Angola Seguros S.A. with no contestation of the rating.

The information received from GA Angola Seguros S.A. and other reliable third parties to accord the credit rating included:

  • Audited financial results as at 31 Dec 2014
  • Unaudited interim results of as at 31 Mar 2015
  • Four years of comparative audited numbers
  • Budgeted financial statements for 2015
  • The current year reinsurance summary, and
  • 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 more detailed glossary of terms/acronyms used as per GCR insurance glossary, please click here

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