Announcements

GCR affirms Grand Reinsurance Company (Private) Limited’s rating of BBB-(ZW); Outlook Positive.

Johannesburg, 11 July 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Grand Reinsurance Company (Private) Limited of BBB-(ZW), with the Outlook accorded as Positive. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating of B-, with the Outlook accorded as Stable. The ratings are valid until May 2017.

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’s rating has been placed on positive outlook, reflecting the potential for upward rating movement over the rating horizon, stemming from an improved level of aggregate profitability, coupled with a sustained strengthened level of capitalisation and liquidity.

Grand Re’s underwriting profitability improved substantially in FY15. The reinsurer’s earnings trends have historically been volatile, owing in large to the reduced margin headroom offered by the previously elevated total expense ratio relative to peers. The underwriting margin equated to 16% in FY15 (FY14: 5%), well above the prior review period average (4%). Management expects the underwriting margin to lower to 7% in BY16, factoring in potential for a higher loss ratio in certain lines. This notwithstanding, the reinsurer reflects potential to report an improved level of medium term aggregate profitability, in terms of higher average margins, coupled with a reduced level of volatility. With respect to this, the reinsurer should also derive some earnings support via investment yields going forward.

The reinsurer reflects a sizeable capital base, resulting in an international solvency margin of 221% at FYE15. The solvency margin is propped up by the large quantum of funds backing strategic investments. Positively, capital increased to USD13.2m at FYE15, on the back of a USD2.5m capital injection (with proceeds placed in money market instruments), and USD0.8m in retained profits. Accordingly, excluding funds backing strategic investments, the international solvency margin rose to 79% at FYE15, having tracked at a very low historical level (averaging 29%). As such, risk adjusted capitalisation is viewed to have improved substantially.

Cash and equivalents grew to USD3.9m at FYE15 (FY14: USD0.9m), with the capital injection partially addressing the notably low cash balance previously exhibited. Accordingly, claims coverage rose to 32 months (FY14: 6 months), while cash covered net technical liabilities by a higher 0.8x (FYE14: 0.3x). Grand Re expects to further enhance liquidity going forward, through improved cash generation and improving premium debtor collections.

Competitive positioning is intermediate, albeit improving, with the reinsurer’s market share rising to 10% in FY15. 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.

Strategic investments (stable at USD8.5m) take the form of a subsidiary investment in Cresta Hospitality (a hotel operation), which combined with property represents 69% of total investments. These investments are viewed to constrain the reinsurer’s asset quality due to their limited marketability, and limited potential for investment income. Positively, the money market investments should provide an investment income stream that will uplift overall profitability going forward.

Retrocession protection is placed with counterparties carrying moderately strong aggregated credit strength. Maximum net retention per risk and event corresponds to a low exposure level below 1% of FYE15 capital.

GCR views country risk factors to be elevated, and a systematic rating consideration applicable to reinsurers’ national scale ratings. 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, the international scale rating is heavily constrained by sovereign risk, given that the bulk of assets are domiciled in Zimbabwe. While the country has no sovereign rating, it has previously defaulted on payments to international financial institutions.

The positive outlook reflects the potential for positive rating movement stemming from a sustained improvement in aggregate earnings capacity, coupled with a sustained strengthened level of capitalisation and liquidity. Negative rating sensitivities pertain primarily to reductions in earnings capacity, capitalisation and liquidity.

NATIONAL SCALE RATINGS HISTORY   INTERNATIONAL SCALE RATINGS HISTORY
     
Initial rating (September 2009)   Initial rating (September 2009)
Claims paying ability: BBB(ZW)   Claims paying ability: B-
Outlook: Stable   Rating outlook: Stable
     
Last rating (May 2015)   Last rating (May 2015)
Claims paying ability: BBB-(ZW)   Claims paying ability: B-
Outlook: Stable   Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst    
Marc Chadwick    
Sector Head: Insurance Ratings    
(011) 784-1771    
chadwick@globalratings.net    
     
Committee Chairperson    
Yvonne Masiku    
Senior Credit Analyst    
(011) 784-1771    
ymasiku@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2015

Grand Reinsurance Company (Private) Limited rating reports, 2009-2015

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 ratings were 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 ratings.

The information received from Grand Reinsurance Company (Private) Limited and other reliable third parties to accord the credit rating included:

  • The audited annual financial statements to 31 December 2015
  • 4 years of comparative audited numbers
  • Unaudited interim results to 31 May 2016
  • Budgeted financial statements for 2016
  • 2016 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 please click here

GCR affirms Grand Reinsurance Company (Private) Limited’s rating of BBB-(ZW); Outlook Positive.

image_pdfPDF View

Leave a Reply



ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.