Announcements Insurance Rating Alerts

GCR affirms Genric Insurance Company Limited’s rating of A-(ZA); Outlook revised to Stable

Rating Action

Johannesburg, 17 December 2019 – GCR Ratings (“GCR”) has affirmed Genric Insurance Company Limited’s (“Genric”) national scale financial strength (formerly claims paying ability) rating of A-(ZA), with the Outlook revised to Stable, from Negative.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Genric Insurance Company Limited Financial strength National A-(ZA) Stable Outlook

GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for Genric was placed ‘Under Criteria Observation’. GCR finalised the review for Genric under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for Genric has been reviewed in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.

Rating Rationale

Genric’s rating reflects the insurer’s moderately strong liquidity, intermediate risk adjusted capitalisation and earnings, and comparatively weak business profile. The revision of the Outlook to Stable reflects the improvement in earnings following corrective action.

Genric’s liquidity is viewed to be moderately strong, based on GCR’s stressed financial asset coverage of net technical liabilities and operational cash flow requirements. GCR expects Genric’s liquidity to remain at similar levels over the outlook horizon, supported by sound cash flow generation and a conservative investment allocation approach.

Risk adjusted capitalisation is assessed to be sound, following improved internal capital generation and a reduction in underwriting risk. The insurer is targeting a comfortable buffer above the minimum regulatory solvency requirement, with a partial repayment of Tier-II capital to be based on managing solvency around this level. Accordingly, capitalisation is expected to be maintained at rating consistent levels, although could moderate over the medium term as Genric executes its growth strategy.

Genric’s earnings improved in FY19, with the net incurred loss ratio reducing to 44% from a high of 66% in FY18, reflecting the impact of corrective measures that were implemented during the year. However, this was accompanied by reduced scale efficiencies, with a modest underwriting profit posted for the year, and a positive but potentially thin underwriting result expected in FY20. In this respect, successful achievement of medium term growth targets while maintaining improved portfolio performance could result in a stronger earnings assessment going forward.

Genric reflects a very low market share, which is expected to remain well below 1% over the short to medium term, given the corrective underwriting and portfolio management in FY19. The overall assessment of the business profile considers a healthy level of diversification by line of business, although this is offset by geographic concentration to South Africa.

Outlook Statement

The Stable Outlook reflects expectations that improved earnings will support stability in the financial profile, while the business profile is not expected to change materially over the outlook horizon.

Rating Triggers

Positive rating action could develop on the back of a sustained improvement in earnings while maintaining stable credit protection metrics. Conversely, downward rating pressure may arise if liquidity or capitalisation register below expectations.

Analytical Contacts

Primary analyst Susan Hawthorne Senior Analyst
Johannesburg, ZA Susanh@GCRratings.com +27 11 784 1771
Committee chair Yvonne Mujuru Sector Head: Insurance Ratings
Johannesburg, ZA Ymujuru@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, June 2019
GCR Insurance Sector Risk Scores, December 2019

Ratings History

Rating class Review Rating scale Rating Outlook/Watch Date
Claims paying ability Initial National A-(ZA) Stable May 2015
Last National A-(ZA) Negative February 2019

Risk Score Summary

Risk scores Genric Insurance Company Limited
Operating environment 16.25
Country risk score 7.50
Sector risk score 8.75
Business profile -3.00
Competitive position -2.50
Premium diversification -0.50
Management and governance 0.00
Financial profile 0.00
Earnings -0.25
Capitalisation 0.25
Liquidity 0.00
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 13.25

Glossary

Capital The sum of money that is invested to generate proceeds.
Capital Adequacy A measure of the adequacy of an entity’s capital resources in relation to its risks.
Diversification Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
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.
Rating Horizon The rating outlook period
Rating Outlook A rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).
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.

SALIENT POINTS OF ACCORDED RATING

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 the 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 Genric Insurance Company Limited. 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.

Genric Insurance Company Limited participated in the rating process via face-to-face 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 Genric Insurance Company Limited and other reliable third parties to accord the credit rating included:

  • The audited financial results up to 30 June 2019
  • Four years of comparative audited numbers to 30 June
  • Unaudited management accounts to 30 September 2019
  • Budgeted financial statements to 30 June 2020
  • The current reinsurance programme summary
  • Other related documents.
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