Johannesburg, 31 October 2018 — Global Credit Ratings has today affirmed Namibia National Reinsurance Corporation Limited’s national scale claims paying ability rating of A+(NA), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Namibia National Reinsurance Corporation Limited of BB, with the outlook accorded as Negative. The ratings are valid until September 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Namibia National Reinsurance Corporation Limited (“NamibRe ”) based on the following key factors:
NamibRe’s liquidity is viewed to be strong, underpinned by reduced technical liabilities. In this regard, cash coverage of net technical liabilities registered at 2.1x (FY17: 1.9x; FY16: 0.9x), while cash covered 15 months’ worth of average monthly claims (FY17: 9 months; FY16: 5 months). GCR’s assessment of the reinsurer’s liquidity profile also considers the additional liquidity support available from a large portfolio of collective investments, which predominantly comprise cash and government securities. GCR expects liquidity metrics to remain within a strong range over the outlook horizon, although some dilution may follow the anticipated growth in the risk base upon resumption of compulsory cessions.
The reinsurer’s business profile is healthy, supported by a strong domestic market share and well diversified earnings stream. NamibRe is the only locally registered player and has historically benefited from regularized mandatory cessions. Nonetheless, the reinsurer’s premium base was adversely impacted by a temporary retraction of mandatory cessions following legal action in FY18. As such, NamibRe’s market share reduced to 19% in FY18 (FY17: 24%; FY16: 20%). The reinstatement of mandatory cessions, which was expected to become effective from June 2018, was delayed due to ongoing disputes. GCR nevertheless, expects NamibRe to maintain its healthy competitive position over the rating horizon, supported by entrenched relationships, strong brand recognition and regional diversification.
Capital amounted to NAD211m at FY18 (FY17: NAD184m), supported by improved earnings. Accordingly, the international solvency margin equated to a higher 136% at FY18 (FY17: 77%), further supported by a reduction in the risk base. GCR expects capitalisation to remain within a strong range over the rating horizon, supported by the reduced risk base and fairly contained asset risk. Cognisance is taken however, of potential moderation in risk adjusted capital strength from existing levels, given high targeted premium growth. Maximum net deductibles per risk and event are limited to conservative levels relative to capital, while the retrocession panel’s aggregated credit strength is viewed to be sound.
Underwriting profitability improved to a robust level in FY18, due to a favorable claims experience. In this respect, the underwriting margin equated to 17% in FY18 (FY17: 7%; review period average: 7%). Net earnings were further supported by investment income, with the investment yield equating to 7%, in line with the review period average of 7%. In GCR’s view, underwriting profitability is likely to moderate, given normalisation of the net incurred loss ratio and comparatively lower near term growth projections (in light of the ongoing legal process).
The rating derives upliftment from implicit shareholder support, given that the reinsurer is 100% owned by the Namibian government. In this regard, the reinsurer is viewed to be of moderate strategic importance to the national government.
The international scale rating remains impacted by Namibia’s sovereign rating, given the fact that the reinsurer’s assets are entirely domiciled locally, while the majority of revenues are sourced domestically.
Positive rating movement could develop over the medium term if the reinsurer’s earnings capacity sustainably improves and there is a sustained strengthening in capitalisation. Conversely, downward rating pressure may follow a deterioration in earnings capacity. Furthermore, a weakening in capitalisation and/or liquidity could lead to negative rating action, together with a reduction in the strategic importance of the reinsurer.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial/ last rating (March 2018)||Initial/ last rating (March 2018)|
|Claims paying ability: A+(NA)||Claims paying ability: BB|
|Outlook: Stable||Outlook: Negative|
|Primary analyst||Secondary analyst|
|Susan Hawthorne||Linda Matavire|
|Senior Credit Analyst||Junior Credit Analyst|
|Sector Head: Insurance Ratings|
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
Namibia National Reinsurance Corporation Limited rating report 2018
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.
Namibia National Reinsurance Corporation Limited participated in the rating process via 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 Namibia National Reinsurance Corporation.
The information received from Namibia National Reinsurance Corporation and other reliable third parties to accord the credit ratings included:
- Audited financial statements to March 2018
- Unaudited interim results as at 31 August 2018
- Four years of comparative financial statements
- Budgeted financial statements for 2019
- Life and non-life actuarial reports for 2018
- 2019 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
|Audited Financial Statements||Financial statements that bear the report of independent auditors (attesting to the financial statements’ fairness and compliance with generally accepted accounting principles).|
|Benefits||Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|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.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Cession||Amount of the insurance ceded to a reinsurer by the original insuring company (cedant) in a reinsurance transaction.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Conditions||Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Deductible||The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Incurred Loss||The total amount of paid claims and loss reserves associated with a particular time period, usually a policy year.|
|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.|
|International Solvency Margin||Measures the ability to cover current year’s written premiums using shareholder’s funds.|
|Interest||Money paid for the use of money.|
|Investment Income||The income generated by a company’s portfolio of investments.|
|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.|
|Loss||The happening of the event for which insurance pays.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Net Incurred Loss||The total amount of paid claims and loss reserves associated with a particular time period, less the reinsurance portion.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Reinstatement||The resumption of coverage under a policy, which has lapsed.|
|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||(1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.|
|Retrocession||The transaction whereby a reinsurer cedes to another reinsurer all or part of the reinsurance it has previously assumed.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|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.|
|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.|
|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 Namibia National Reinsurance Corporation Limited’s rating of A+(NA); Outlook Stable.