Announcements

GCR affirms GLICO General Insurance Company Limited’s rating of A-(GH); Outlook Stable.

Johannesburg, 31 Oct 2014 — Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to GLICO General Insurance Company Limited of A-(GH); with the outlook accorded as Stable. The rating(s) are valid until August 2015.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to GLICO General Insurance Company Limited (“Glico”) based on the following key criteria:

Glico’s rating reflects the insurer’s healthy competitive position. Having successfully repositioned itself in the market in 2011, Glico has made good progress in bedding down revenues, and sustaining a competitive growth trajectory. The insurer’s role as a very strong niche insurer in Ghana’s marine and coco trade is also viewed as a relative competitive strength.

Capital adequacy is viewed as strong to intermediate, bolstered by a high level of capital quality. Underwriting risk in limited by the fairly low level of product risk. However, exposure to a large volume of aged premium debtors represents a sizeable capital exposure, with the adjusted international solvency margin equating to 53% (peer group average: 76%).

Liquidity measures at good to moderately good levels. Operational cash requirements are adequately met with cash on hand. However, technical provision coverage has slid consistently over the past three years, with fairly limited liquidity relief available from the remainder of the property-heavy investment portfolio.

The sizeable aged premium debtor’s book also impacts negatively on cash flow efficiencies. Claims reserves as a proportion of NWP have averaged 37% over the past three years (consistently rising to the review period high of 41% in 2013), representing an above average level of reserving relative to peers.

The heavy reliance on a few large clients for revenue generation (with the largest policyholder accounting for approximately half of the gross premium base) introduces significant concentration risk. Accordingly, the insurer must demonstrate control over potential top line volatility going forward. As a partial offset to this, the relationship with the strategic partner sustained niche marine positioning.

Glico’s underwriting margin has evidenced a fairly high degree of volatility over the review period, and has returned a small cumulative deficit. This has been impacted by fluctuations in both the net incurred loss ratio, as well as net commission expenses. Accordingly, increased consistency within the technical result is required in order to stabilise underwriting profitability going forward. Limited scale efficiencies further dampen underwriting profitability.

Upward movement on the rating or outlook could develop with a stable and profitable underwriting track record, and continued diversified and profitable growth. This must be accompanied by appropriate risk adjusted solvency levels. A downgrade may arise if a continued deterioration in the operating performance was evidenced, or the solvency margin fell below GCR’s comfort level for this rating on a sustained basis, and/or a weakening in liquidity metrics.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY

Initial rating (September 2011)
Claims paying ability: A-(GH)
Outlook: Stable

Last rating (July 2013)
Claims paying ability: A-(GH)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

Committee Chairperson
Benjamin Schmidt
Senior Analyst: Insurance
(011) 784-1771
Schmidt@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies, July 2014
Glico rating reports, 2011 – 2013.

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.

GLICO General Insurance Company 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 GLICO General Insurance Company Limited with no contestation of the rating.

The information received from GLICO General Insurance Company Limited and other reliable third parties to accord the credit rating(s) included the 2013 audited annual financial statements (plus four years of comparative numbers), latest Internal and/or external report to management, full year 2014 budgeted financial statements, year to date management accounts to March 2014, the 2014 reinsurance cover notes, and other documentation related to the rating exercise.

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.

GCR affirms GLICO General Insurance Company Limited’s rating of A-(GH); Outlook Stable.

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