Johannesburg, 3 March 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Hollard Insurance Ghana Limited of A(GH), with the outlook accorded as Stable. The rating is valid until October 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating to Hollard Insurance Ghana Limited based on the following key criteria:
Hollard Insurance Ghana Limited (“Hollard Ghana”), previously known as Metropolitan Insurance Company Limited, was rebranded in February 2016, following a change in shareholding structure related to the South African insurance group in February 2015.
The rating recognises Hollard Ghana’s favourable strategic position as one of the leading local insurance companies. Market presence is supported by established relationships with various corporate entities. The change in shareholding structure is expected to augment the insurer’s market position going forward, in light of potential revenue flows and franchise value derived from the operational and technical support received from top-tier South African insurer The Hollard Insurance Company Limited. Furthermore, the shareholding and branding alignment is viewed to provide a degree of rating support.
Hollard Ghana’s capital position strengthened considerably in FY15, and is viewed to be a key rating strength. In this regard, a GHS11m capital injection in respect of the share purchase resulted in the international solvency margin rising to 74% as
at 1H F15. The solvency margin is expected to be sustained at a strong level over the short term (FYE15: 77%).
Liquidity metrics measured at strong levels, with working capital management supporting the improved metrics in FY14. Accordingly, the claims cash coverage and cash to technical liabilities ratio increased to 20 months and 1.3x respectively (FY13: 16 months and 0.9x respectively). Liquidity is expected to remain at strong levels, with the capital injection in FY15 cementing liquidity metrics at current levels over the medium term.
Earnings capacity is viewed to be weak, with the insurer posting underwriting losses over the last four years. This has been a function of the persistently high loss ratio relative to peers, coupled with the limited risk premium base. Over the medium term, earnings capacity is expected to remain constrained, as the loss ratio is likely to remain elevated, given the impact of flood related claims expected to materialise in FY15 and FY16. The insurer’s medium term strategy to contain the claims experience, while increasing the scale of the retained premium base represents a key rating consideration going forward, as Hollard Ghana strives to achieve underwriting profitability by 2017.
Hollard Ghana’s risk appetite for CAT exposure is viewed to be moderate, with maximum retention per event equating to 6% of the 1H F15 capital base.
Upward movement on the rating or outlook could occur with the development of a stable underwriting track record and continued growth, augmenting earnings diversification. This must be accompanied by sustained strength in capitalisation and liquidity metrics. Negative rating action may follow a sustained deterioration in the operating performance, a weakening in capitalisation and liquidity metrics, or an increase in asset risk exposure.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (October 2010)|
|Claims paying ability: A(GH)|
|Last rating (July 2015)|
|Claims paying ability: A(GH)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Vinay Nagar|
|Sector Head: Insurance Ratings||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 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.
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.|
|Bond||A certificate issued by a government or corporation as evidence of a debt. The issuer of the bond promises to pay the bondholder a specified amount of interest for a specified period and to repay the loan on the expiration (maturity) date.|
|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.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Equities||Investments in the form of ownership of property, usually common stocks, as distinguished from fixed income bearing securities, such as bonds or mortgages.|
|Insurance||A formal social device for reducing risk by transferring the risks of several individual entities to an insurer. The insurer agrees, for a consideration, to assume, to a specified extent, the losses suffered by the insured.|
|Insurance portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Insurer||Any corporation engaged in the business of furnishing insurance to the public.|
|Investment portfolio||The total securities owned by an insurer.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss||The happening of the event for which insurance pays.|
|Market Value||The price for which something would sell, especially the value of certain types of assets, such as stocks and bonds. It is based on what they would sell for under current market conditions.|
|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.|
|Policyholder||The person in actual possession of an insurance policy.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Protection||A term used interchangeably with ‘coverage’ to denote insurance provided under the terms of a policy.|
|Contract provision||A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.|
|Rating||The statistical process by which insurers determine risks and pricing for the basic classes of insurance.|
|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.|
|Risk||(1) Uncertainty as to the outcome of an event when two or more possibilities exist. (2) A person or object insured.|
|Securities||Evidences of a debt or of ownership, as stocks, bonds, and checks.|
|Shareholders’ equity||The money value of an insurance company that is over and above its liabilities. Liabilities include almost all of its reserves.|
|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 solvency||Required by or having to do with law or statute.|
|Term||The period of time for which a policy or bond is issued.|
|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 in this announcement please click here
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.
Hollard Insurance Ghana 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 has been disclosed to Hollard Insurance Ghana Limited with no contestation of the rating.
The information received from Hollard Insurance Ghana Limited and other reliable third parties to accord the credit rating included:
- The audited financial statements to 31 December 2014
- Four years of comparative numbers
- Unaudited year to date results to 30 September 2015
- Budgeted financial statements for 2015
- The current year reinsurance/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.
GCR affirms Hollard Insurance Ghana Limited’s rating of A(GH); Outlook Stable.