Announcements

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

Johannesburg, 30 Nov 2017 — 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 of BB+, with the outlook accorded as Stable. The ratings are valid until October 2018.

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:

CICA Re reflects very strong risk adjusted capitalisation, underpinned by a sizeable capital base catering for the large quantum of insurance and market risk exposures. In this respect, the international solvency margin remained sound at 111% at FY16 (FY15: 125%) and is expected to remain within a similar range over the rating horizon. Healthy internal capital generation, along with well contained market risk exposures, are likely to sustain risk adjusted capitalisation within a very strong range over the rating horizon.

The reinsurer’s liquidity is viewed to be strong, supported by a conservative asset allocation strategy. Cash coverage of average monthly claims equated to 15 months in FY16 (FY15: 21 months), while cash coverage of net technical provisions measured at a 0.6x (FY15: 0.7x). Note is taken of the inclusion of cash placements with cedants (representing 27% of total assets at FY16) in liquidity metrics, giving rise to a degree of counterparty risk. This is largely mitigated by the expected set-off against final claims settlements. GCR expects liquidity metrics to remain within a strong range over the rating horizon, supported by fairly stable asset allocation.

Earnings capacity is viewed to be strong, supported by healthy underwriting margins and sound investment returns. In this respect, the underwriting margin equated to 10% in FY16 (FY15: 9%), consistent with the review period average. This was a function of a low operating cost base, along with relative stability in both acquisition costs and claims experience. Similarly, the operating margin equated to 16% (FY15: 17%), trending in line with the review period average of 16%. Management expects earnings capacity to strengthen further, underpinned by prospects of an improved loss experience in FY17.

The reinsurer’s business profile is viewed to be strong, underpinned by a favourable strategic and market position in the Conférence Interafricaine des Marchés d’Assurances (“CIMA”) zone and a fairly diversified business mix. CICA Re’s regional competitive position is supported by compulsory cessions and its 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. In this respect, CICA Re controlled 16% of the CIMA short term business cessions in FY16 (FY15: 14%). Despite growing competition from other international players, CICA Re expects to continue to defend its market share through expansion into new markets.

The retrocession panel reflects a moderately sound aggregate level of counterparty strength, which is largely a function of lead retrocessionnaire counterparties displaying strong ratings, while the balance of retrocessionnaires are either unrated or reflect weak credit profiles.

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 sustained deterioration in risk adjusted capitalisation below a commensurate level for the current rating, and/or a weakening in credit protection 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 (November 2016) Last rating (October 2016)
Claims paying ability: A(TG) Claims paying ability: BB+
Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst Committee Chairperson
Tichaona Nyakudya Marc Chadwick
Credit Analyst Sector Head: Insurance Ratings
(011) 784- 1771 (011) 784 – 1771
tichaonan@globalratings.net chadwick@globalratings.net
   

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2017

Criteria for Rating Long Term Insurance Companies, updated July 2017

CICA Re rating reports, 2006-2016

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; and 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 2016
  • Four years of comparative numbers
  • Unaudited interim results to 30 June 2017
  • Budgeted financial statements for 2017
  • The current year 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 A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Balance Sheet Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
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.
Cash Funds that can be readily spent or used to meet current obligations.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
Deductible The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.
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.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
Execution Risk The risk that a company’s business plans will not be successful when they are put into action.
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.
International Scale Rating LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
Liquidity The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Operating Margin Measures the efficiency of profit generation from investments and underwriting.
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.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
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.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Yield Percentage return on an investment or security, usually calculated at an annual rate.

For a detailed glossary of terms, please click here

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

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