Johannesburg, 25 September 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Mainstream Reinsurance Company Limited at A-(GH), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has downgraded the international scale claims paying ability rating assigned to Mainstream Reinsurance Company Limited to B-; with the outlook accorded as Stable. The ratings are valid until August 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Mainstream Reinsurance Company Limited (“Mainstream Re”) based on the following key criteria:
An anticipated capital injection during FY15 is expected to enhance underwriting capacity, allowing for greater participation across a broader risk spectrum. This should contribute towards improved diversification and critical mass, and a strengthening in the company’s competitive profile over the medium term. The ability of the reinsurer to successfully execute the expansion strategy, whilst achieving sustained earnings stability, is expected to be a key rating consideration going forward.
On the back of consistent profit generation and capital injections, the reinsurer’s international solvency margin remains sound. GCR considers Mainstream Re’s earnings capacity to be moderately strong, with further impetus expected to be derived from improved economies of scale over the next two to three years. Furthermore, the enhanced capital base is expected to support sufficient risk adjusted capitalisation levels over the medium term growth phase.
Supported by a sufficiently conservative asset management strategy, asset quality is viewed to be relatively strong. Furthermore, the investment of a large portion of the anticipated capital injection into short term instruments is expected to support liquidity strength over the rating horizon.
Mainstream Re is one of three locally registered reinsurers in Ghana. In this regard, the reinsurer stands to benefit from local content cessions, as well as close to market presence. Nevertheless, the reinsurer’s balance sheet and premium levels in absolute terms are viewed to be relatively constrained in the context of other local and regional players operating in the market.
Retrocession agreements limit maximum deductibles to fairly conservative levels against capital, supported by moderately strong aggregate counterparty credit strength.
The downgrade of the international scale rating follows the downgrade of the Ghanaian sovereign rating to B-. Mainstream Re’s international scale rating is expected to remain at this level, until such a time as the sovereign credit rating improves.
Going forward, upward movement of the national scale 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 downgrade may arise if the reinsurer is unable to raise the additional capital required to meet regulatory requirements, and to sustain capitalisation at rating appropriate levels on a USD basis. Negative rating action could also follow a sustained deterioration in operating performance and/or a weakening in liquidity metrics.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (November 2008)||Initial rating (November 2008)|
|Claims paying ability: A-(GH)||Claims paying ability: B|
|Outlook: Stable||Outlook: Stable|
|Last rating (July 2014)||Last rating (July 2014)|
|Claims paying ability: A-(GH)||Claims paying ability: B|
|Outlook: Stable||Outlook: Negative|
|Primary analyst||Secondary Analyst|
|Susan Hawthorne||Kudzai Siwawa|
|Senior Credit Analyst||Junior Credit Analyst|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Mainstream Reinsurance Company Limited rating reports (2008-2014)
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 rating 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.
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 ratings have 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 included:
- The unsigned annual financial statements to December 2014
- 4 years of comparative audited numbers
- Unaudited year to date results to 30 June 2015
- Budgeted financial statements to December 2015
- 2015 reinsurance 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||The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|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.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|Solvency||With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.|
|Statutory||Required by or having to do with law or statute.|
|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 detailed glossary of terms please click here