Johannesburg, 30 August 2018 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to NICO General Malawi Insurance Company Limited of AA-(MW), with the outlook accorded as Stable. The rating is valid until August 2019.
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:
NICO General Malawi’s risk adjusted capital adequacy is viewed to be strong, supported by a sizeable capital base catering for the quantum of insurance and market risk exposures. Accordingly, the international solvency margin remained high at 70% at FY17. Risk adjusted capitalisation is likely to remain within a similar range over the outlook horizon, supported by high internal capital generation, and fairly well contained dividend distributions. Furthermore, the maximum net deductible per risk and event are maintained at very conservative levels relative to capital, while reinsurance arrangements are placed with fairly well rated counterparties.
Earnings capacity is robust, supported by a sustained strength in underwriting profitability and healthy investment returns. In this respect, the insurer’s five year aggregated underwriting margin equated to 12% (FY17: 13%; FY16: 13%), with the operating margin averaging 34% over the review period. Strong profit metrics have been largely a function of a reducing loss ratio attained through enhanced underwriting measures, coupled with claims cost management initiatives, which are expected to sustain earnings strength. Furthermore, net profitability has been supported by very high investment yield (review period average: 24%). GCR views the insurer’s demonstrated track record as indicative of medium term earnings capacity.
The liquidity profile, including government securities, is viewed to be strong. This has been facilitated by the insurer’s strong cash flow generation, coupled with fairly conservative asset allocation. As such, coverage of net technical provisions equated to a strong 1.4x at FY17 (FY16: 1.5x), while average monthly claims coverage equated to 20 months (FY16: 23 months). Liquidity strength is expected to be sustained at similar levels over the rating horizon. Cognisance is, however, taken of the fact that majority of funds are placed with unrated financial institutions.
NICO General Malawi maintained its position as the largest player in the local short term insurance market. In this regard, the insurer’s share of total short term insurance industry premiums equated to an unchanged 36% in FY17, while the relative market share equated to 2.9x in FY17 (FY16: 2.8x). Going forward, GCR expects the insurer to continue to defend its strong competitive position, supported by entrenched market relationships, strong brand recognition and expanded distribution channels.
The rating currently matches the national scale claims paying ability rating ceiling applicable to entities operating within the Malawian short term insurance industry. In this regard, positive rating action may follow an assessment of country and industry risk factors. Conversely, downward rating sensitivities pertain primarily to a reduction in capital strength, liquidity and earnings capacity.
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NATIONAL SCALE RATINGS HISTORY |
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| Initial rating (May 2008) | ||
| Claims paying ability: AA-(MW) | ||
| Outlook: Stable | ||
| Last rating (August 2017) | ||
| Claims paying ability: AA-(MW) | ||
| Outlook: Stable |
ANALYTICAL CONTACTS
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
NICO General Malawi 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 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.
The information received from NICO General Malawi Insurance Company Limited and other reliable third parties to accord the credit rating included:
- The 2017 audited annual financial statements 4 years of comparative audited numbers
- Unaudited interim results to 30 June 2018
- Budgeted financial statements for 2018
- Other related documents
The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
| 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 NICO General Malawi Insurance Company Limited’s rating of AA-(MW); Outlook Stable.