Johannesburg, 2 Jun 2015, Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to NICOZDiamond Insurance Limited of A-(ZW); with the outlook accorded as Stable. The rating is valid until May 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to NICOZDiamond Insurance Limited (“NICOZDiamond”) based on the following key criteria:
The rating is underpinned by NICOZDiamond’s very strong market position as one of the leading players in the domestic general insurance arena, with a 13% market share. Going forward, established market relationships, branding and expanded distribution channels are expected to maintain the insurer’s strong position. Capitalisation has been maintained within a strong range, and represents a key component of the insurer’s rating. The international solvency margin increased to 66% in FY14. The metric has, however, exhibited volatility over the past three years, and is forecast to reduce to 54% in FY15 (a function of growth in retained underwriting risk). GCR expects capitalisation metrics to remain strong going forward, while factoring this range for solvency volatility into the rating.
Earnings capacity is viewed to be moderately strong. NICOZDiamond has evidenced a consistent improvement in underwriting surpluses over the past three years, and forecasts reflect a continuation of this trend into FY15. NICOZDiamond’s average underwriting profit margin over the past 3 years (5%) lags that of the peer group (16%), due in large to the insurer’s higher weighting in commercial motor business. Improvements in the claims experience of this book in recent years support prospective earnings capacity. Earnings by line of business are somewhat well spread with three classes each contributing in excess of 10% of the gross premium base. This is supported by a fairly low level of product risk.
Liquidity metrics have been measured at intermediate levels with claims cash cover and cash cover of technical liabilities recording at adequate levels (9 months and 0.8x cover respectively). The investment portfolio consisted of lower exposure to illiquid investments (FY14: 42%) with decreasing property and unlisted equity exposures. This notwithstanding, the quality of the balance sheet is considered relatively sound in the absence of any material banking counterparty exposures. Going forward, the insurer plans to reduce exposure to illiquid assets further.
The maximum net deductible per risk and event is contained to a very conservative level. Reinsurance arrangements are placed with counterparties with varying national scale ratings, containing reinsurance counterparty risk at a relatively low level. GCR’s view of reserving sufficiency is positively impacted by the certification of reserve levels by a qualified actuary.
GCR views country risk factors to be elevated, and a systematic rating consideration applicable to insurers. Operational challenges are likely to persist given the uncertain socio-political outlook, severe liquidity strain, reduction in banking sector stability and weak macroeconomic fundamentals.
NICOZDiamond’s national scale rating currently matches GCR’s rating ceiling applicable for the Zimbabwean market. Downward rating pressure may arise from deterioration in key credit protection measures, a weakened underwriting performance and/or the adoption of a more aggressive investment strategy. Should the economic or socio-political outlook deteriorate further, the rating ceiling of the insurance sector may be reviewed.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (post US dollarisation May 2009)|
|Claims paying ability: A-(ZW)|
|Last rating (May 2014)|
|Claims paying ability: A-(ZW)|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014
NICOZDiamond Insurance Limited rating reports, 2009-2014
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.
NICOZDiamond Insurance 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 NICOZDiamond Insurance Limited with no contestation of the rating.
The information received from NICOZDiamond Insurance Limited and other reliable third parties to accord the credit rating included:
- The 2014 audited annual financial statements
- 4 years of comparative audited numbers
- Unaudited interim results as per 31 March 2015
- Budgeted financial statements for 2015
- 2015 reinsurance cover notes
- 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 detailed glossary of terms utilised in this announcement please click here