Announcements

GCR affirms Namibia National Reinsurance Corporation Ltd’s rating of AA-(NA); Outlook Stable.

Johannesburg, 15 Dec 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Namibia National Reinsurance Corporation Limited of AA-(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; “Stable outlook”. The ratings are valid until November 2015.

SUMMARY RATING RATIONALE

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

Asset quality is a relative rating strength, with a low risk balance sheet and strong weighting in cash instruments supporting a high degree of liquidity. Whilst a proposed large scale investment in unit-linked instruments is noted, the near cash nature of these investments does not materially alter GCR’s medium term view on liquidity and balance sheet strength. Capitalisation constitutes a further factor underpinning the rating, with a high degree of profit retention supporting stability in the international solvency margin above the 100% mark over the review period. Moreover, risk based capital adequacy continues to measure at strong levels and is expected to underpin relative capital strength over the rating horizon. The adoption of a revised investment strategy and the pending increase in the mandatory cession rate, however, are likely to drive higher future risk adjusted capitalisation requirements. In addition, retrocession counterparty strength is considered robust (with programme placements pertaining mainly to strongly rated participants), whilst net treaty deductibles per risk and event remain well contained relative to FYE14 capital.

The demonstrated track record of sustained underwriting profits has been favourably considered, although increased delivery cost pressure has given rise to a moderate degree of margin erosion of late. Amidst relatively subdued investment earnings, this served to limit net profit generation, with the outlook on future profitability viewed as mixed. Portfolio diversification remains a relative rating weakness, with only two lines of business (namely motor and fire) contributing meaningfully to premium volumes in F14.

Namib Re’s corporate profile is supported by its status as the only domestically licenced reinsurer and its 100% Namibian government shareholding. Whilst the recently approved protracted increase in its compulsory cession mandate supports predictability in revenue streams over the medium term, its market standing continues to be undermined by its relatively small capital base (US$12m at FYE14) and perceived limited underwriting capacity. Given that the reinsurer’s financial assets are domiciled exclusively in Namibia, its international scale rating remains constrained by the country’s sovereign rating, which has recently been affirmed at BBB-; stable outlook.

In the absence of protracted strong premium and capital growth (indicating a notably enhanced underwriting capacity) an upward adjustment of the rating or the rating outlook is considered unlikely over the medium term. Conversely, downward rating pressure could stem from a notable weakening in risk adjusted capitalisation, a protracted deterioration in asset quality and/or sustained underwriting losses. In addition, a protracted weakening in underwriting profitability and/or a sustained deterioration in key credit protection metrics would be viewed negatively. From an international perspective, a change in the sovereign rating of Namibia could have adverse rating implications.

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

NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATINGS HISTORY
Initial rating (Sep/2006) Initial rating (Sep/2006)
Claims paying ability: AA-(NA) Claims paying ability: BB
Outlook: Stable Outlook: Stable
Last rating (April/2014) Last rating (April/2014)
Claims paying ability: AA-(NA) Claims paying ability: BB
Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Benjamin Schmidt
Senior Analyst- Insurance
(011) 784-1771
Schmidt@globalratings.net

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

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance and Reinsurance Companies, updated July 2014.
Namibia National Reinsurance Corporation Limited (“Namib Re”) rating reports 2006-2014.

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 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.

Namibia National Reinsurance Corporation 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 Namibia National Reinsurance Corporation Limited with no contestation of the rating.

The information received from Namibia National Reinsurance Corporation Limited and other reliable third parties to accord the credit rating(s) included 2014 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year 2015 detailed budgeted financial statements, most recent year to date management accounts to 30 November 2014, 2014 retrocession cover notes, as well as other non-public statistical information.

The ratings above were not solicited by, or on behalf of, the rated client, and therefore, GCR has not been compensated for the provision of the ratings.

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