Johannesburg, 6 Jul 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Grand Reinsurance Company (Private) Limited at BBB-(ZW); with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Grand Reinsurance Company (Private) Limited at B-; with the outlook accorded as Stable. The ratings are valid until May 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Grand Reinsurance Company (Private) Limited (“Grand Re”) based on the following key criteria:
Grand Re reflects a sizeable capital base, underpinning an international solvency margin of 221% in FY14. However, the reinsurer’s solvency position is significantly supported by property revaluation gains. Accordingly, risk adjusted capitalisation is negatively impacted by asset exposure and composition. Furthermore, due to the concentration of illiquid assets in the investment portfolio, liquidity is measured at weak levels. This represents a constraining rating factor. A partial improvement in liquidity in FY15 is expected to be derived from enhanced debtor collection coupled with operational cash flow generation. Accordingly, cash is budgeted to rise to USD2.3m at FYE15, translating into a budgeted technical provision coverage metric of 0.8x.
Grand Re has recorded an average underwriting margin of 4% over the review period, reflecting a moderate level of profitability. While a degree of margin volatility has been observed, profitability metrics are budgeted to improve going forward, following the attainment of scale benefits that are expected to be derived from strong premium growth targets (a function of geographic expansionary initiatives).
Grand Re’s competitive positioning is viewed to be intermediate, with the reinsurer holding a market share of 7%. This position is supported by group synergies and established relationships with key cedants. GCR expects the reinsurer’s position in the local market to remain at a similar level going forward, while benefitting from a degree of geographic diversification.
Retrocession protection is placed with counterparties carrying moderately strong aggregated credit strength. Maximum net retention per risk and event corresponds to an intermediate exposure level at 3% of FYE14 capital.
GCR views country risk factors to be elevated, and a systematic rating constraint applicable to reinsurers. Operational challenges are likely to persist given the uncertain socio-political outlook, severe liquidity strain, reduction in banking sector stability and weak macroeconomic fundamentals. Furthermore, as the bulk of Grand Re’s assets are domiciled in Zimbabwe, the international rating is significantly constrained by sovereign risk. Although the country has no sovereign rating, it has previously defaulted on payments to international financial institutions.
Positive rating movement could be triggered by an improvement in the reinsurer’s competitive positioning, sustained profitability, and a notable strengthening in key liquidity metrics, aided by improved asset quality. Downward rating pressure may result from a deterioration of underwriting performance, and a further weakening in liquidity metrics. Further, a deterioration in country risk factors continues to represent a key downside risk to reinsurers in the market.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATING HISTORY|
|Initial rating (post US dollarisation September 2009)||Initial rating (post US dollarisation September 2009)|
|Claims paying ability: BBB(ZW)||Claims paying ability: B-|
|Outlook: Stable||Outlook: Stable|
|Last rating (May 2014)||Last rating (May 2014)|
|Claims paying ability: BBB-(ZW)||Claims paying ability: B-|
|Outlook: Stable||Outlook: Stable|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014
Grand Reinsurance Company (Private) Limited rating reports, 2009-2014
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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Grand Reinsurance Company (Private) 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 ratings have been disclosed to Grand Reinsurance Company (Private) Limited with no contestation of the rating.
The information received from Grand Reinsurance Company (Private) Limited and other reliable third parties to accord the credit rating included:
- The 2014 audited annual financial statements
- 4 years of comparative audited numbers
- Unaudited interim results as per 31 March 2015
- Budgeted financial statements for 2015
- 2015 retrocession cover notes
- Other related documents.
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.
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 terms utilised please click here