Announcements

GCR affirms NICO General Malawi Insurance Company Limited’s rating of A+ (MW); Outlook Positive.

Johannesburg, 30 August 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to NICO General Malawi Insurance Company Limited of A+(MW), with the outlook accorded as Positive. The rating is valid until August 2017.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to NICO General Malawi Insurance Company Limited (“NICO General Malawi”) based on the following key criteria:

The positive outlook reflects NICO General Malawi’s sustained strengthening in earnings capacity and capitalisation, with key metrics remaining within strengthened bands likely to result in upward rating movement over the rating horizon.

NICO General Malawi’s earnings capacity is viewed to have strengthened over the past three years. In this regard, the underwriting margin registered at 14% in FY15 (FY14: 11%), and is budgeted to remain at an elevated level (11%) in FY16. This strengthened margin compares favourably to previous years (FY13: 7%; FY12: 2%). Improved profit metrics have been underpinned by a reducing loss ratio attained through enhanced underwriting measures, coupled with claims cost management initiatives. Earnings capacity is further supported by strong investment income, and a fairly well diversified risk premium portfolio.

NICO General Malawi’s capitalisation is viewed to be strong, underpinned by healthy internal capital generation. Risk adjusted capitalisation measured at a strong level, with the international solvency margin equating to 69% at FYE15 (FY14: 59%). The margin is expected to remain at similar levels going forward (FY16: 64%), with high levels of capital generation expected to support capital relative to the insurer’s high growth targets.

NICO General Malawi reflects a strong competitive position, representing a core component of the insurer’s rating. NICO General Malawi continues to be the market leader in the domestic short term insurance industry, with a market share of 36%. GCR expects the insurer to retain its market position over the medium term, underpinned by franchise value and established corporate relationships.

The insurer’s liquidity has been very strong and stable over the past three years. In this regard, the claims cash coverage ratio registered at 20 months, and cash to technical liabilities was recorded at 1.3x. Liquidity is supported by moderately sized financial assets, the bulk of which consists of listed equities. Going forward, GCR expects liquidity metrics to be sustained at sound levels, supporting the insurer’s rating.

The maximum net deductible per risk and event was maintained at a very conservative level. Reinsurance arrangements are placed with well rated counterparties, containing reinsurance risk at a very low level.

The positive outlook reflects likely upward rating movement should the insurer attain earnings and capitalisation metrics in line with expected levels. The rating exhibits negative sensitivities towards a weakened level of competitive positioning, a reduction in capital strength relative to risk factors, and a material weakening in earnings capacity and liquidity.

NATIONAL SCALE RATINGS HISTORY
 
Initial rating (May 2008)
Claims paying ability: AA-(MW)
Outlook: Stable
 
Last rating (August 2015)
Claims paying ability: A+(MW)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst   Secondary Analyst
Marc Chadwick   Zwivhuya Mukosi
Sector Head: Insurance Ratings   Junior Credit Analyst
(011) 784-1771   (011) 784-1771
chadwick@globalratings.net   zwivhuyam@globalratings.net
     
Committee Chairperson    
Yvonne Masiku    
Senior Credit Analyst    
(011) 784-1771    
ymasiku@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2016

NICO General Malawi Insurance 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 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.

NICO General Malawi Insurance 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 rating has been disclosed to NICO General Malawi Insurance Company Limited with no contestation of the rating.

The information received from NICO General Malawi Insurance Company Limited and other reliable third parties to accord the credit rating included:

  • The 2015 audited annual financial statements 4 years of comparative audited numbers
  • Unaudited interim results as at 30 June 2016
  • Budgeted financial statements for 2016
  • Other related documents.

The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.


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

GCR affirms NICO General Malawi Insurance Company Limited’s rating of A+ (MW); Outlook Positive.

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