Johannesburg, 31 October 2018 — 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 2019.
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 factors:
CICA Re reflects a stable risk profile that is supported by very strong risk adjusted capitalisation. This is largely a function of a sizeable capital base catering for the quantum of insurance and market risk exposures. Accordingly, the international solvency margin equated to 108% at FY17 (FY16: 111%). Looking ahead, strong internal capital generation, along with well contained market and credit risk exposure, is likely to offset a possible increase in underwriting risk, given high growth targets engaged. Furthermore, a planned capital injection of XOF20bn by FY20 is earmarked to sustain risk adjusted capitalisation within a very strong range over the outlook horizon.
Earnings capacity was maintained within a strong range, with the average review period underwriting margin of 9% bolstered by solid investment income to register a corresponding operating margin of 15%. While management expects improved loss performance to strengthen underwriting margins to 12% over the rating horizon, GCR takes note of possible earnings moderation from event-driven fire losses (given a level of risk appetite and a developing risk management function). In this regard, barring improvements in scale efficiencies, earnings capacity is likely to average within a similar range over the medium term.
The reinsurer’s liquidity is viewed to be strong, supported by a conservative asset allocation strategy and a sizeable amount of deposits lodged with cedants. Cash equivalents and interest securities covered average monthly claims by 13 months at FY17 (FY16: 15 months) and net technical provisions by a stable 0.7x, albeit rising to 1.2x (FY16: 1.1x) when cedant deposits are considered. GCR expects liquidity metrics to remain within a strong range over the medium term, supported by a fairly stable asset allocation and potential for a capital injection, as well as the possible gradual easing in capital expenditure pressures.
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. In this respect, CICA Re controlled 15% of the CIMA cessions in FY17 (FY16: 13%), while three lines of business contributed materially to gross and net premiums. Despite growing competition from other international players, CICA Re is expected to defend its market share and improve business spread through expansion into new markets, diversification and aggressive marketing of its efforts. Furthermore, exposures per risk and event are limited to conservative levels relative to capital, while the retrocession panel reflects moderately strong aggregate counterparty strength.
The international scale rating is largely impacted by the sovereign ratings of the underlying member states, given the fact that the majority of the reinsurer’s assets are domiciled locally, while majority of revenue is sourced from the region.
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 expectations, and/or a weakening in liquidity, 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 2017)||Last rating (November 2017)|
|Claims paying ability: AA(TG)||Claims paying ability: BB+|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Secondary Analyst|
|Godfrey Chingono||Fleur NGASSA|
|Senior Credit Analyst||Junior Credit Analyst|
|(011) 784- 1771||(011) 784-1771|
|Sector Head: Insurance Ratings|
|(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
Criteria for Rating Long Term Insurance Companies, updated May 2018
CICA Re rating reports, 2006-2017
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.
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 2017
- Four years of comparative numbers
- Unaudited interim results to 30 June 2018
- Budgeted financial statements for 2018
- The current year retrocession cover notes
- Other related documents
The ratings above were solicited by, or on behalf of, the rated entity, 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, spanning a time from twelve to eighteen months.|
|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.