Announcements

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

Johannesburg, 31 August 2018 — 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 of B-, with the outlook accorded as Stable. The ratings are valid until August 2019.

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:

Mainstream Re’s liquidity is viewed to be sound, with very strong liquidity partially offset by moderately high single banking counterparty exposure. Liquidity metrics continued to measure within an elevated range, with the claims cash cover ratio equating to 86 months and cash coverage of net technical provisions measuring at 4.1x at FY17 (FY16: 185 months and 3.8x), being a function of a relatively sizeable and highly liquid investment portfolio. Note is, however, taken of negating risks stemming from a single banking counterparty, which held 54% of bank deposits at FY17. Going forward, liquidity may continue to register within a similar range, supported by conservative asset allocation.

The reinsurer’s capital base amounted to USD10.7m at FY17 (FY16: USD11.4m), supporting very strong risk adjusted capitalisation. Accordingly, the international solvency margin measured at a very high 303% at FY17 (FY16: 314%). Nonetheless, in absolute terms, the scale of the capital base is viewed to be moderate relative to regional competitors (taking the reinsurer’s expansionary targets into account). In GCR’s view, risk adjusted capitalisation is expected to continue to measure within a similar range, underpinned by sound internal capital generation and limited exposure to market risk. Furthermore, maximum net deductibles per event and risk are limited to fairly conservative levels relative to capital, supported by moderately strong aggregate counterparty credit strength.

The reinsurer is one of five locally registered reinsurers in Ghana. Whilst the reinsurer benefits from local content cessions, as well as close to market presence, the balance sheet and premium levels in absolute terms are viewed to be comparatively constrained relative to other local and regional players operating in the market. The reinsurer expects to intensify its marketing activities and increase its broker networks to enhance its competitive position over the medium term, leveraging off its enhanced capital base.

The international rating is impacted by Ghana’s sovereign rating, given that the bulk of the reinsurer’s assets are domiciled locally, and the majority of revenues are derived domestically.

Upward rating movement could arise over the longer term if Mainstream Re evidences sustained improvement in earnings capacity and competitive position, with risk adjusted capitalisation and liquidity metrics maintained at very strong levels. Conversely, negative rating action may follow a sustained deterioration in operating performance and/or a weakening in credit protection 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 (September 2017) Last rating (September 2017)
Claims paying ability: A(GH) Claims paying ability: B-
Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

Primary analyst Committee Chairperson
Sylvia Mhlanga Yvonne Mujuru
Credit Analyst Sector Head: Insurance Ratings
(011) 784-1771 (011) 784-1771
sylviam@globalratings.net ymujuru@globalratings.net
   

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated May 2018

Mainstream Reinsurance Company Limited rating reports, 2008-2017

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 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.

The information received from Mainstream Reinsurance Company Limited and other reliable third parties to accord the credit ratings included:

  • The audited financial statements as at December 2017
  • Four years of comparative audited numbers
  • Unaudited year to date results to 31 March 2018
  • Budgeted financial statements to December 2018
  • 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.

TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY

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.
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.
Distribution Channel The method utilised by the insurance company to sell its products to policyholders.
Enterprise Risk Management ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.
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 (“ISR”) 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.
Intermediary A third party in the sale and administration of insurance products.
Interest Money paid for the use of money.
Investment Portfolio A collection of investments held by an individual investor or financial institution.
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.
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”) National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.
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
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
Short Term Current; ordinarily less than one year.
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.
Subordinated Debt Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.
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.
Underwriting Margin Measures efficiency of underwriting and expense management processes.

For a detailed glossary of terms please click here

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

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