Johannesburg, 01 September 2017 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to General Alliance Insurance Limited of AA-(MW), with the outlook accorded as Stable. The rating is valid until August 2018.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to General Alliance Insurance Limited (“GA Malawi”) based on the following key criteria:
GA Malawi reflects very strong capitalisation, underpinned by robust internal capital generation, catering for the quantum of insurance and market risk. Accordingly, the international solvency margin equated to a high 121% at FY16 (FY15: 122%). Healthy internal capital generation, together with well contained dividend distributions, are likely to sustain risk adjusted capitalisation metrics within very strong ranges going forward.
Key liquidity measures remained at very strong levels, underpinned by sound operating cash generation, and balanced asset allocation. In this regard, cash coverage of net technical liabilities remained unchanged at 1.2x, while claims cash coverage registered at 28 months (FY15: 39 months). This strength is expected to persist over the rating horizon, supported by sound operating cash flow generation and management’s commitment to maintaining a balanced investment approach.
Asset quality is viewed to be moderately strong, supported by the high representation of liquid assets in the portfolio (FY16: 60%; FY15: 57%), further underpinned by traditionally well contained debtors in excess of 180 days (albeit with a somewhat notable increase recorded at FY16). According to the insurer, debtor management remains a key focus area, with the accounts in arrears viewed as fully recoverable.
Earnings capacity is viewed to be very strong, supported by robust underwriting profitability and sound investment income (cumulatively amounting to MWK2.6bn over the review period). In this regard, the insurer’s aggregated underwriting margin equated to a robust 27% (FY16: 28%; FY15: 35%). GCR views the insurer’s demonstrated track record of underwriting profitability as indicative of earnings capacity going forward.
GA Malawi remained a top tier player in the local arena, supported by strong gross premium growth over the review period (four year compound annual growth rate: 22%). As such, the insurer’s share of total short term insurance industry gross premiums equated to 12% in FY16 (FY15: 13%). Moderately strong competitive positioning was largely supported by the insurer’s high brand recognition and established relationships with clients, which are expected to persist over the outlook horizon.
The business mix is viewed to be well diversified, with four lines of business each contributing in excess of 10% to gross written premiums. While the risk base is heavily geared towards motor business (FY16: 58%; FY15: 62%), this is partially offset by the low product risk associated with this line. Furthermore, certain specialist lines of business, while remaining relatively constrained on a net premium basis, offer the insurer relevant diversification benefits.
The reinsurance panel reflects a moderately strong aggregated level of counterparty strength, while net deductibles per risk and event are limited to levels that GCR views as conservative relative to capital.
The rating currently matches the national scale claims paying ability rating ceiling applicable to entities operating within the Malawian short term insurance industry. In this regard, positive rating action may follow an assessment of country and industry risk factors. Conversely, downward rating sensitivities pertain primarily to a reduction in capital strength, liquidity and earnings capacity.
| NATIONAL SCALE RATINGS HISTORY |
| Initial rating (May 2008) |
| Claims paying ability: A+ (MW) |
| Outlook: Stable |
| Last rating (August 2016) |
| Claims paying ability: AA-(MW) |
| Outlook: Stable |
ANALYTICAL CONTACTS
| Primary Analyst | Secondary Analyst |
| Yvonne Mujuru | Zwivhuya Mukosi |
| Sector Head: Insurance Ratings | Junior Credit Analyst |
| (011) 784 – 1771 | (011) 784 – 1771 |
| ymujuru@globalratings.net | zwivhuyam@globalratings.net |
| Committee Chairperson |
| Susan Hawthorne |
| Senior Credit Analyst |
| (011) 784 – 1771 |
| susanh@globalratings.net |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2017
General Alliance Insurance Limited rating reports, 2008-2016
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/RATING-SCALES-DEFINITIONS. 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.
General Alliance Insurance 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 General Alliance Insurance Limited with no contestation of the rating.
The information received from General Alliance Insurance Limited and other reliable third parties to accord the credit rating included:
- The 2016 audited annual financial statements 4 years of comparative audited numbers
- Unaudited interim results to 31 May 2017
- Budgeted financial statements for 2017
- 2017 reinsurance 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.
| Capacity | The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace. |
| Capital | The sum of money that is invested to generate proceeds. |
| Capitalisation | The provision of capital for a company, or the conversion of income or assets into capital. |
| Capital Adequacy | A measure of the adequacy of an entity’s capital resources in relation to its risks. |
| Cash | Funds that can be readily spent or used to meet current obligations. |
| Claim | A request for payment of a loss, which may come under the terms of an insurance contract. |
| Credit Rating | An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories. |
| Distribution Channel | The method utilised by the insurance company to sell its products to policyholders. |
| Enterprise Risk Management | ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level. |
| Exposure | Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued. |
| International Scale Rating (“ISR”) | International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions. |
| Intermediary | A third party in the sale and administration of insurance products. |
| Interest | Money paid for the use of money. |
| Investment Portfolio | A collection of investments held by an individual investor or financial institution. |
| Liquidity | The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price. |
| Market Risk | Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors. |
| National Scale Rating (“NSR”) | National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss. |
| Policyholder | The person in actual possession of an insurance policy. |
| Portfolio | All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business. |
| Premium | The price of insurance protection for a specified risk for a specified period of time. |
| Rating Horizon | The rating outlook period |
| Risk | The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives. |
| Risk Management | Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy. |
| Short Term | Current; ordinarily less than one year. |
| 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. |
| Subordinated Debt | Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt. |
| 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. |
| Underwriting Margin | Measures efficiency of underwriting and expense management processes. |
For a more detailed glossary of terms, please click here
GCR affirms General Alliance Insurance Limited’s rating of AA-(MW); Outlook Stable.
