Announcements

GCR affirms Global Alliance Seguros Mozambique’s rating of AA-(MZ); Outlook Stable.

Johannesburg, 31 Oct 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Global Alliance Seguros Mozambique of AA-(MZ); with the outlook accorded as Stable. The rating(s) are valid until June 2015.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Global Alliance Seguros Mozambique (“GA Seguros”) based on the following key criteria:

GA Seguros reflects a very strong business profile, underpinned by a market leading position in the short term insurance arena. This is supported by strong branding, and a high level of client support and broker acceptance.

Capital adequacy is viewed to be moderately strong, with the international solvency margin expected to rise to 63% in F14 (F13: 55%). On a risk-adjusted basis, capital strength is supported by the low level of product risk within the insurer’s net premium base, and limited market risk in the investment portfolio. This is expected to persist going forward, given stability in the underwriting and investment strategies over the rating horizon.

Liquidity has strengthened consistently over the past three years, and represents a key rating strength. Coverage of both technical provisions and average monthly claims have been catered for at conservative levels. The previously observed active reduction in exposure to risk assets has contributed favourably to the enhanced liquidity position. The quantum of liquid holdings is expected to be supported by healthy operational cash generation over the next 12 months.

GA Seguros has recorded very high levels of underwriting profitability throughout the review period. Coupled with a full income retention strategy, this has resulted in cumulative retained earnings of MZM387m over the review period. GA Seguros’ financial profile is further complemented by the comprehensive reinsurance programme, which is negotiated at group level, and is led by highly rated counterparties. Maximum net retention per risk and event on 2014 XOL is unchanged at US$250,000 per risk and event (1.6% of FYE13 capital), which is viewed to be conservative.

GA Seguros’ rating derives upliftment from implicit shareholder support. GA Seguros is a wholly owned subsidiary of the Absa Group, one of the largest banking groups in Africa, who is in turn a subsidiary of Barclays Bank Plc (UK), one of the world’s largest banks. Key benefits of this relationship for the insurer include operational and technical support, penetration into the banking group’s vast client base, and more recently financial backing in the form of a US$1.5m capital injection (in 2H F12).

GA Seguros’ rating currently matches the national scale ceiling applicable to entities operating within the Mozambican insurance industry. Accordingly, an upgrade of the rating could potentially follow a strengthening of key industry factors. Further, given that the rating recognises the Absa Group shareholding and previously demonstrated capital support, a further upgrade that pierces the industry ceiling is considered unlikely in the absence of an explicit holding company guarantee.

A deterioration in key rating factors, such as a significant and protracted loss in market share, accompanied by deterioration in underwriting performance, impinging on key credit protection measures, may trigger a negative rating action.

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

NATIONAL SCALE RATINGS HISTORY

Initial rating (November 2002)
Claims paying ability: BBB+(MZ)
Outlook: Stable

Last rating (May 2013)
Claims paying ability: AA-(MZ)
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

Criteria for Rating Insurance Companies, Updated July 2014.
GA Seguros rating reports, 2002 – 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.

GA Seguros 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 GA Seguros with no contestation of the rating.

The information received from GA Seguros and other reliable third parties to accord the credit rating(s) included the 2013 audited annual financial statements (plus four years of comparative audited numbers), full year detailed budgeted financial statements for 2014, year to date management accounts to September 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 Global Alliance Seguros Mozambique’s rating of AA-(MZ); Outlook Stable.

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