Johannesburg, 19 Sep 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to General Alliance Insurance Limited of A+(MW); with the outlook accorded as Stable. The rating(s) are valid until 7/2014.
Global Credit Ratings has accorded the above credit rating(s) on General Alliance Insurance Limited based on the following key criteria:
Incorporated in 1996, General Alliance Insurance Limited (“GA”) is owned by Equity Investments Limited (50.01%) and Fidelity Limited (49.99%), both corporates entities whose beneficiary is the extended Savjani family, which has widespread business interests in Malawi.
The insurer’s position as a top tier player in the domestic non-life insurance market (14% market share in 2012) lends support to the rating, having allowed for participation in sizeable corporate risks of late. Further, cognisance is taken of the sound underwriting track record exhibited, with margins trending persistently above the industry average over the review period. Nevertheless, due to increased claims pressure, relative underwriting profitability has weakened notably over the past two years. Going forward, management expects margin levels to revert to historical norms amidst concerted re-pricing efforts.Spurred by the liquidation of a sizeable portion of its listed equity portfolio (in an effort to capitalise on high prevailing cash yields), key liquidity metrics improved considerably in F12 to register at sound levels. A drawback, however, remains the high concentration of cash reserves to unrated banks (three largest: 87% in F12), albeit a function of the underdeveloped domestic investment market. The treaty reinsurance programme is mainly led by secure rated counterparts, whilst net deductibles per risk and event remain well contained relative to FYE12 capital (at 0.4% and 1.1% respectively). The adoption of a revised capital management approach (aimed at improving capital efficiencies) resulted in a sizeable dividend payment for F12. Coupled with strong premium growth, this saw international solvency recede to a review period low of 72% in F12 (4-year historic average: 110%), a level which is forecast to be sustained for F13. In view of the insurer’s business mix and the current investment stance, GCR considers this to be a level commensurate with the current rating. Overall, however, the rating remains constrained by the uncertain economic environment (characterised by high inflationary pressure and the relative weakness of the Malawi Kwacha).
In view of persistent challenging economic conditions (including high inflationary pressure and a sustained weakening of the Malawi Kwacha), and based on GA’s medium term business plan, an upward adjustment of the rating is considered unlikely over the medium term. Conversely, downward rating pressure could emanate from a weakening in the insurer’s financial position over a prolonged period, accompanied by a notable decline in key credit protection metrics. In this regard, GCR would expect international solvency to be sustained around the F13 forecast level over the medium term, whilst liquidity is also anticipated to be maintained in line with historic norms.
NATIONAL SCALE RATINGS HISTORY
Initial rating (May/2008)
Claims paying ability: A+(MW)
Last rating (Aug/2012)
Claims paying ability: A+(MW)
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Sector Head: Insurance
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Criteria for Rating Short Term Insurance and 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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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/s 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 2012 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external reports to management, full year 2013 detailed budgeted financial statements, unaudited year to date management accounts to 30 June 2013, reinsurance cover notes for 2013, statutory solvency returns for 2011 and 2012, as well as other nonpublic statistical information.