Johannesburg, 3 Jul 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Global Alliance Seguros, S.A. of AA-(MZ); with the outlook accorded as Stable. The rating is valid until June 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Global Alliance Seguros, S.A. (“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 strong, with the international solvency margin improving to 72% in FY14. Strong solvency is expected to persist going forward, underpinned by continued high capital generation, coupled with containment of the quantum of underwriting risk. Capital management is expected to align with Solvency Assessment and Management through the Absa Group, facilitating an enhanced level of risk-based capital management.
Liquidity metrics rose to very strong levels in FY14, with claims cash coverage having consistently strengthened over the review period. Cash covered net technical liabilities by a very strong 2.3x at FYE14 (FYE13: 1.7x). Liquidity metrics are expected to remain at strong levels over the medium term.
Earnings capacity has been measured at robust levels, with GA Seguros reporting double digit underwriting margins throughout the review period. Profitability stems from high stability and containment of both claims and expenses. Very strong RoE (FY14: 27%) is expected to persist, complemented by a 100% profit retention strategy.
The reinsurance programme reflects strong counterparties, with the maximum net retention per risk and event on XOL limited to a very low 1.2% of FYE14 capital.
GA Seguros’ rating is further reinforced by the implicit shareholder support provided by the Absa Group (a subsidiary of Barclays Bank Plc (UK)). In this regard, GA Seguros is provided with operational and technical support, as well as an additional avenue for growth by having access to the group’s large client base. Furthermore, the group has provided continued financial support over the review period.
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.
NATIONAL SCALE RATINGS HISTORY
Initial rating (November 2002)
Claims paying ability: BBB+(MZ)
Last rating (August 2014)
Claims paying ability: AA-(MZ)
Sector Head: Insurance Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating insurance companies, updated July 2014
Global Alliance Seguros, S.A. rating reports (2002-2014)
RATING LIMITATIONS AND DISCLAIMERS
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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.
Global Alliance Seguros, S.A. 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 has been disclosed to Global Alliance Seguros, S.A. with no contestation of the rating.
The information received from Global Alliance Seguros, S.A. and other reliable third parties to accord the credit rating included:
- Audited financial results as per 31 December 2014
- Unaudited interim results as per 30 April 2015
- Four years of comparative numbers
- Budgeted financial statements for 2015
- Other related documents
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Assets||The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|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.|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|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.|
|Statutory||Required by or having to do with law or statute.|
|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.|
For a detailed glossary of insurance terms, please click here