Announcements

GCR affirms Mainstream Reinsurance Company Limited rating of A-(GH); Outlook Stable.

Johannesburg, 7 Aug 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Mainstream Reinsurance Company Limited of A-(GH); with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Mainstream Reinsurance Company Limited of B; with the outlook accorded as Negative. The rating(s) are valid until July 2015.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Mainstream Reinsurance Company Limited (“Mainstream Re”) based on the following key criteria:

Mainstream Re is well capitalised. The international solvency margin has been maintained above 100% over the review period, solidified by both steady levels of internally generated capital and injections from shareholders. Mainstream Re continues to follow a moderately conservative investment strategy, with the majority of investments held in liquid funds. Cash and cash equivalents increased by 2.8x to GHS4.6m, accounting for an increased 38% of capital (F12: 11%). Cash coverage of technical liabilities increased to a sound 1.0x (F12: 0.3x), while claims cash coverage strengthened to 17 months.

The ratings are positively impacted by Mainstream Re’s consistent underwriting profitability over the review period. The reinsurer has achieved a healthy average underwriting margin in excess of 10%, supported by the containment of both the incurred loss and delivery cost ratios.

The ratings take cognisance of the fact that Mainstream Re is 1 of only 2 locally registered reinsurers, having well established relationships with local primary insurance players, and a close-to-market status, bolstering its market profile. This notwithstanding, its scale remains limited, with Mainstream Re accepting approximately 7% of total industry cessions in F13.

Concentration by cedant remains high, with the 5 largest clients comprising 64% of the gross book, and the largest representing 20%. The international scale rating has been negatively impacted by the rating pressure on Ghana’s sovereign rating, given that the bulk of the reinsurer’s assets are domiciled in Ghana.

Upward movement on the rating or outlook could develop with a demonstrated, enhanced market position while maintaining a profitable underwriting track record. This must be accompanied by risk appropriate solvency levels, a stringent capital management policy and a prudent investment profile. A reduction in premium debtor balances would also be favourably viewed. A downgrade may arise on the back of a sustained deterioration in the operating performance, a lowering of capital adequacy on a sustained basis, and/or a sustained weakening in liquidity metrics.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATINGS HISTORY
Initial rating (Nov/2008) Initial rating (Nov/2008)
Claims paying ability: A-(GH) Claims paying ability: B
Outlook: Stable Outlook: Stable
Last rating (Jul/2013) Last rating (Jul/2013)
Claims paying ability: A-(GH) Claims paying ability: B
Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

Secondary Analyst
Eric Mafu
Junior Analyst
(011) 784-1771
Mafu@globalratings.net

Committee Chairperson
Dirk Greeff
Sector Head: Financial Institutions
(011) 784-1771
DGreeff@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies (Updated July 2014)
Mainstream Reinsurance Company Limited rating reports 2008-2013.

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 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.

Mainstream Reinsurance Company 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/s has been disclosed to Mainstream Reinsurance Company Limited with no contestation of the rating.

The information received from Mainstream Reinsurance Company Limited and other reliable third parties to accord the credit rating(s) included the audited annual financial statements for FYE2013 (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements for FYE2014, year to date management accounts to April 2014, the current year retrocession cover notes, and other documentation related to the rating exercise.

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 Mainstream Reinsurance Company Limited rating of A-(GH); Outlook Stable.

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