Johannesburg, 3 October 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Malawi Reinsurance Company Limited of BBB(MW), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale rating assigned to Malawi Reinsurance Company Limited of B, with the outlook accorded as Negative. The ratings are valid until August 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Malawi Reinsurance Company Limited (“Malawi Re”) based on the following key criteria:
Competitive positioning is viewed to be moderate. Malawi Re is the only locally licenced reinsurer in Malawi. The company forms part of a larger reinsurance group, providing access to technical support. However, the reinsurer’s balance sheet size and premium levels in absolute terms are viewed to be comparatively limited in the context of the regional reinsurance market, constraining the reinsurer’s business profile.
Liquidity metrics measured at intermediate levels. Claims cash coverage equated to 13 months in FY15 (FY14: 15 months), while cash coverage of net technical liabilities stood at 0.9x (FY14: 1x). Note is taken of the shortfall of total investments relative to total net technical provisions, with cash generation being hampered by the large quantum of balance sheet funding tied up in receivables. Going forward, liquidity metrics are expected to be supported by stability in the conservative investment strategy, although improved collections will be required in order to strengthen overall asset quality.
Malawi Re’s earnings capacity is viewed to be intermediate. In this regard, the reinsurer continues to post soft but stable underwriting margins, ranging between 1% and 5%. Profit margins have been hindered by very high operating expenses limiting margin headroom. Going forward, profitability metrics are expected to be maintained at current levels.
Capitalisation has measured at an intermediate level. Capital adequacy continues to be suppressed by the low quantum of capital, although the low level of market risk within the investment portfolio provides a source of risk relief. The international solvency margin rose to 59% in FY15 (FY14: 55%), measuring comfortably above the internal target (30%). High premium growth may, however, see the dilution of margins going forward.
The reinsurer’s international scale rating is constrained by the fact that Malawi currently does not have a sovereign rating, and that the bulk of the reinsurer’s assets are vested in Malawi. Further consideration in this regard is given to the uncertain economic environment, which is characterised by high inflationary pressure and the sustained weakening of the Malawi Kwacha against major foreign currencies.
Upward rating movement could arise from a material strengthening in key capitalisation, asset quality and profitability metrics. Downward rating pressure could arise from a decline in the company’s capitalisation and/or liquidity metrics, a sustained weakening in profitability, or negative group considerations. Continued weaknesses in country and industry risk factors may have a negative rating impact.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2008)||Initial rating (September 2008)|
|Claims paying ability: A(MW)||International scale: B+|
|Outlook: Stable||Outlook: Stable|
|Last rating (August 2015)||Last rating (August 2015)|
|Claims paying ability: BBB(MW)||International scale: B|
|Outlook: Stable||Outlook: Negative|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Malawi Reinsurance Company Limited rating reports, 2008-2015
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; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Malawi 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 Malawi Reinsurance Company Limited with no contestation of the ratings.
The information received from Malawi Reinsurance Company Limited and other reliable third parties to accord the credit ratings included:
- Audited annual financial statements to 31 December 2015
- 4 years of comparative audited numbers
- Unaudited interim results to 30 June 2016
- Budgeted financial statements for 2016
- The 2016 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||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 more detailed glossary of terms, please click here