Johannesburg, 4 May 2021 – GCR Ratings (“GCR”) has affirmed Genric Insurance Company Limited’s (“Genric”) national scale financial strength rating of A-(ZA), Stable Outlook.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|Genric Insurance Company Limited||Financial strength||National||A-(ZA)||Stable Outlook|
Genric’s rating affirmation reflects the insurer’s credit profile consolidation, following a sustained strengthening in earnings and the resultant improvement in the financial profile over the past two years. The rating balances the insurer’s limited business profile, with a limited competitive profile and single market focus partly offset by a well-diversified product portfolio.
Earnings capacity improved over the past two years as a result of the introduction of new products and the cancellation of non-performing portfolios, resulting in a smaller but competitive book. Underwriting profitability was bolstered by selective underwriting and the onboarding of new UMAs, whilst investment income was sound regardless of depressed investment markets. As such, the net loss ratio registered at 45% in FY20 (FY19: 44%: prior three-year average: 64%) translating to a two-year average underwriting margin of 3% (FY20: 5%; prior three-year average: -4%). Conversely, the contraction in premiums (resulting in loss of scale efficiencies, coupled with an increase in staff related costs, IT and consultancy fees resulting in reduced scale efficiency. In this respect, the operating expense ratio registered at a review period peak of 73% in FY20 (FY19: 71%: FY16: 39%). Going forward, GCR expects cross cycle net profitability to be sustained, given a contained claims experience and a consistent stream of investment income. Management’s ability to bed down the portfolio cleaning and growth initiatives whilst maintaining profitability could be a rating consideration.
Genric’s liquidity was maintained within a moderately strong range over the past two years, supported by strong cash generation from operations, coupled with a favourable claims experience. As such, stressed financial asset coverage of net technical liabilities registered at 2.7x (FY19: 2.5x), with operational cash coverage being maintained at 10 months at FY20. Going forward, there is a likelihood of a slight moderation in liquidity metrics resulting from a shareholder loan repayment, however, overall liquidity is expected to remain within a moderately strong range.
Risk adjusted capitalisation registered within a strong range over the past two years supported by well contained exposures to insurance and market risks, coupled with strong internal capital generation. As such, the regulatory Solvency Capital Requirement (“SCR”) coverage was maintained at 1.4x at FY20. Going forward, risk adjusted capitalisation is expected to be maintained at a rating appropriate level (measuring around management’s targeted Regulatory Solvency Capital Requirement coverage of 1.4x), supported by contained dividend distributions.
Genric’s business profile is viewed as limited, evidenced by a gross premium market share of approximately 0.3% in FY20. This notwithstanding, the insurer reflects healthy premium diversification with four and three lines contributing materially to gross and net premiums respectively, partially offset by limited geographic diversification reflected by concentration to the primary market.
The stable outlook reflects expectations of earnings and liquidity to be maintained within a healthy range, whilst risk adjusted capitalisation remains within a strong range. Conversely, the business profile is likely to remain limited over the outlook horizon.
Positive rating action may stem from sustained improvement in earnings supporting a strengthening in liquidity and/or capitalisation. Conversely, downward rating pressure may arise from a sustained reversal in the earnings trend that reduces capitalisation materially below target levels.
|Primary analyst||Linda Matavire||Analyst: Insurance Ratings|
|Johannesburg, ZA||LindaM@GCRratings.com||+27 11 784 1771|
|Committee chair||Godfrey Chingono||Deputy Sector Head: Insurance Ratings|
|Johannesburg, ZA||GodfreyC@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Insurance Companies, May 2019|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, March 2021|
|GCR Insurance Sector Risk Scores, April 2021|
Genric Insurance Company Limited
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Claims paying ability||Initial||National||A-(ZA)||Stable||May 2015|
|Financial Strength||Last||National||A-(ZA)||Stable||July 2020|
Risk Score Summary
|Rating Components and Factors||Risk score|
|Country risk score||7.00|
|Sector risk score||8.00|
|Management and governance||0.00|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Primary Market||The part of the capital markets that deals with the issuance of new securities.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|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.|
|Repayment||Payment made to honour obligations in regards to a credit agreement in the following credited order: 3.) Satisfy the due or unpaid interest charges; 4.) Satisfy the due or unpaid fees or charges; and 5.) To reduce the amount of the principal debt.|
|Retained Earnings||Earnings not paid out as dividends by a company. Retained earnings are typically reinvested back into the business and are an important component of shareholders’ equity.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Securities||Various instruments used in the capital market to raise funds.|
|Security||One of various instruments used in the capital market to raise funds.|
|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.|
|Technical Liabilities||The sum of Net UPR and Net OCR IBNR.|
|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.|
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to the rated entity. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The information received from the rated entity and other reliable third parties to accord the credit rating included:
- The audited financial results to 30 June 2020;
- Four years of comparative audited financial statements to 30 June;
- Budgeted financial results to 30 June 2021;
- Current year reinsurance cover notes; and
- Other relevant information