Announcements

GCR affirms Joint Reinsurance Company of Member States of CIMA’s rating of AA(TG); Outlook Stable.

Johannesburg, 16 Oct 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Joint Reinsurance Company of Member States of CIMA of AA(TG), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Joint Reinsurance Company of Member States of CIMA at BB+, with the outlook accorded as Stable. The ratings are valid until October 2016.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Joint Reinsurance Company of Member States of CIMA (“CICA Re”) based on the following key criteria:

The reinsurer reflects a strong business profile, underpinned by a favourable strategic and market position in the Conférence Interafricaine des Marchés d’Assurances (“CIMA”) zone, and enhanced earnings diversification. CICA Re’s regional competitive position is supported by compulsory cessions, and the shareholding structure, both of which are likely to continue providing CICA Re with a secure revenue stream and stable market share over the rating horizon. This is further enhanced by well established relationships with primary insurers and extensive market knowledge of region specific risk factors.

CICA Re reflects strong risk adjusted capitalisation, underpinned by the sizeable capital base catering for the large quantum of underwriting and market risks. Sound internal capital generation, together with a contained dividend policy, are likely to maintain risk adjusted capital adequacy at strong levels.

The reinsurer has registered consistent underwriting profitability over the review period, albeit with thin margins. Profitability has been supported by the competitive net incurred loss ratio, offsetting the comparatively elevated operating expenses. In addition, strong investment income has supported overall net profitability over the review period. As such, GCR views the reinsurer’s track record of profitability to be indicative of earnings capacity going forward.

Liquidity metrics remained at sound levels over the last three years, with cash covering net technical liabilities by an average of 0.8x. Inclusive of cash placements with cedants (representing 28% of total assets), technical reserve coverage is viewed to be strong. However, cognisance is taken of the counterparty risk stemming from the sizeable deposits held with cedants, albeit partially mitigated by the expected set-off against final claims settlements, as well as diversification across insurers (with no single cedant holding more than 5% of total deposits). GCR expects liquidity metrics to remain within a moderately strong range over the medium term, supported by the relatively conservative investment strategy.

While primary insurers’ asset quality has been positively impacted by the changes in premium credit regulations, the legislation has not been extended to reinsurers. As such, aged premium debtors continue to represent a relatively elevated source of capital risk. Lead retrocession counterparties have strong ratings, although note is taken of the unrated or weak ratings of retrocession counterparties for the balance of retrocessionaires.

The international scale rating is constrained by the sub-investment grade sovereign ratings of the underlying member states, and the fact that the majority of the reinsurer’s assets are domiciled locally.

The rating currently matches the national scale ceiling applicable to entities operating within the CIMA zone reinsurance industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. Conversely, a consistent deterioration in underwriting profitability, risk adjusted capital adequacy falling below a commensurate level for the current rating, and/or a weakening in key liquidity metrics, could result in negative rating action.

NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATINGS HISTORY

Initial rating (December 2006) Initial rating (December 2006)

Claims paying ability: AA(TG) Claims paying ability: BB+

Outlook: Stable Outlook: Stable

Last rating (October 2014) Last rating (October 2014)

Claims paying ability: AA(TG) Claims paying ability: BB+

Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

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

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2015

Criteria for Rating Long Term Insurance Companies, updated July 2015

CICA Re rating reports, 2006-2014

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 ratings 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.

Joint Reinsurance Company of Member States of CIMA 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 Joint Reinsurance Company of Member States of CIMA with no contestation of the ratings.

The information received from Joint Reinsurance Company of Member States of CIMA and other reliable third parties to accord the credit ratings included:

  • Audited financial results to 31 December 2014
  • Four years of comparative audited numbers
  • Unaudited interim results to 30 June 2015
  • Budgeted financial statements for 2015
  • The current year retrocession cover notes, and
  • 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

Accounting A process of recording, summarising, and allocating all items of income and expense of the company and analysing, verifying and reporting the results.
Budget Financial plan that serves as an estimate of future cost, revenues or both.
Capacity The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.
Capital The sum of money that is invested to generate proceeds.
Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
Capital Adequacy A measure of the adequacy of an entity’s capital resources in relation to its risks.
Capital Base The issued capital of a company, plus reserves and retained profits.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Credit Rating Agency An entity that provides credit rating services.
Creditworthiness An assessment of a debtor’s ability to meet debt obligations.
Diversification Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.
Interest Money paid for the use of money.
Liquidity The speed at which assets can be converted to cash.
Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
Market Risk Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.
National Scale Rating (“NSR”) The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.
Policyholder The person in actual possession of an insurance policy.
Portfolio All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Rating Outlook A rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).
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.
Securities Various instruments used in the capital market to raise funds.
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 more detailed glossary of terms/acronyms used as per GCR insurance glossary, please click here

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