RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) on Joint Reinsurance Company of Member States of CIMA (CICA-Re) based on the following key criteria:
CICA-Re began operations in 1984, with the aim of providing reinsurance services in the CIMA zone. Shareholders comprise 12 of the original member States of CICA-Re (which are to hold no less than 51% on a combined basis), insurance companies and other organisations. More institutions, including banks and insurance companies have become shareholders after the reinsurer broadened the pool to outside shareholders in the recent concluded capital raising exercise. The bulk of the reinsurer’s premium income (63% of GWP in F12) is derived from the CIMA zone, with the remainder generated in the rest of Africa, Asia and the Middle East.
The ratings are supported by CICA-Re’s favourable strategic and market position in the CIMA zone, given its legal mandatory cessions and well established relationships with primary insurers, coupled with its market knowledge of region-specific risk factors. Cognisance is taken of the progress made in increasing geographic diversification over the past three years, albeit that the company’s international market profile remains comparatively limited.
Strong capitalisation, emanating from solid internal capital generation throughout the review period, as well as the F12 capital raising exercise, supports the existing rating. The international solvency margin is projected to remain comfortably above 100% going forward. The rating reflects the reinsurer’s consistently profitable underwriting performance over the review period. However, the cost of securing new business remains high and a constraining factor to earnings development, with margins likely to remain thin in the near term. The strong upward trend in liquidity metrics over the review period has served to mitigate a previous relative rating weakness, with liquidity viewed to be commensurate with the existing rating.
A large portion of total assets (33%) is held with cedants as deposits against notified claims, in accordance with the legal requirement in the CIMA region. This introduces a degree of counterparty risk (albeit partially mitigated by the expected set-off against final claims settlements), while the associated low yield on these deposits constrains investment returns, constraining operating profitability. The high quantum of cedant and premium debtor balances reflected, with debtor balances outstanding for longer than 180 days equating to 11% of FYE12 capital impede asset quality somewhat. International solvency margin reduces to 133% after adjusting for debtor balances outstanding for longer than 180 days. Lead retrocession counterparties have secure ratings, although note is taken of the unrated or non-secure retrocession counterparties for the balance of retrocessionnaires. The international scale rating is impeded by the sub-investment grade sovereign ratings of the underlying member states.
Positive rating action may follow a demonstrated and sustained enhanced profitable underwriting trend, given the geographical diversification and growth strategy currently in-force. This must be accompanied by increased risk appropriate solvency levels, the maintenance of a prudent investment profile, and increased asset spreading. Conversely, negative rating factors include a consistent deterioration in underwriting profitability, the risk adjusted solvency margin falling below a commensurate level for this rating on a sustained basis, and/or a weakening in key liquidity metrics.
NATIONAL SCALE RATINGS HISTORY | INTERNATIONAL SCALE RATINGS HISTORY |
Initial rating (Dec/2006) | Initial rating (Dec/2006) |
Claims paying ability: AA(TG) | Claims paying ability: BB+ |
Outlook: Stable | Outlook: Stable |
Last rating (Sep/2012) | Last rating (Sep/2012) |
Claims paying ability: AA(TG) | Claims paying ability: BB+ |
Outlook: Stable | Outlook: Stable |
ANALYTICAL CONTACTS | |
Primary Analyst | |
Marc Chadwick | |
Regional Sector Head: Insurance | |
+27 11 784 1771 | |
chadwick@globalratings.net | |
Committee Chairperson | |
Dirk Greeff | |
Sector Head: Financial Institution Ratings | |
+27 11 784 1771 | |
dgreeff@globalratings.net | |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Criteria for Rating Short Term Insurance and Reinsurance Companies
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.
Joint Reinsurance Company of Member States of CIMA (CICA-Re) 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 Joint Reinsurance Company of Member States of CIMA (CICA-Re) with no contestation of the rating.
The information received from Joint Reinsurance Company of Member States of CIMA (CICA-Re) and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements, full year budgeted financial statements, unaudited management accounts to June 2013, the current year retrocession cover notes, debtors provisioning, capital management documentation, and investment portfolio breakdowns.
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.