Johannesburg, 04 May 2017 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to NICOZDiamond Insurance Limited at A-(ZW), with the outlook accorded as Stable. The rating is valid until May 2018.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to NICOZDiamond Insurance Limited (“NICOZDiamond”) based on the following key criteria:
NICOZDiamond is one of the leading domestic short term insurers, with a relatively stable share of 14% of total short term industry premiums. The insurer’s entrenched market relationships, strong brand recognition and expanded distribution channels are expected to support strong competitive positioning over the rating horizon.
The insurer reflects moderately strong risk adjusted capital adequacy. This was largely supported by sound capital growth catering for an increasing quantum of aged debtors and higher market risk exposure, given relatively well contained insurance risks. In this respect, the adjusted international solvency margin equated to a fairly high 53% at FY16 (FY15: 50%). Risk adjusted capitalisation is likely to remain within a moderately strong range over the rating horizon, supported by sound internal capital generation.
Key liquidity measures lowered to an intermediate level, after historically registering at moderately strong levels. This was largely due to a portfolio rebalancing, with increased investments in financial assets. In this regard, cash cover of net technical liabilities equated to a lower 0.5x at FY16 (FY15: 0.8x), while the claims cash cover ratio stood at 5 months (FY15: 9 months). Additional support is available from tradeable interest securities and listed equities. As such, GCR expects adjusted liquidity measures to register within a moderately strong range, supported by sound cash flow generation, albeit sensitive to further shifts in asset allocation.
Earnings capacity is viewed to be healthy, underpinned by moderately strong underwriting profitability, offsetting constrained investment income. In this regard, the five year aggregated underwriting margin equated to 6% (FY16: 8%; FY15: 4%), although the investment yield averaged 3% over the review period, reflecting constrained upside impact on earnings capacity. In GCR’s view, earnings capacity is likely to be supported by sound underwriting results over the rating horizon.
The business mix is heavily reliant on motor and property in line with industry norms. Two other ancillary lines of business materially contribute in excess of USD2.5m each to gross premiums. This is supported by a fairly low level of product risk.
The reinsurance panel reflects an intermediate aggregate level of credit strength. Nonetheless, the maximum net deductible per risk and event was maintained at a conservative level relative to capital. Furthermore, GCR’s view of reserving sufficiency is positively impacted by the certification of reserve levels by a qualified external actuary.
GCR views country risk factors to be elevated, and a systematic rating consideration applicable to insurers. Operational challenges are likely to persist over the rating horizon, given the uncertain socio-political outlook, severe liquidity constraints, reduction in banking sector stability and weak macroeconomic fundamentals.
The rating currently matches the national scale ceiling applicable to entities operating within the Zimbabwean insurance industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. Conversely, 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 (June 2016)|
|Claims paying ability: A-(ZW)|
|Primary Analyst||Committee Chairperson|
|Yvonne Mujuru||Marc Chadwick|
|Sector Head: Insurance Ratings||Sector Head: Insurance Ratings|
|(011) 784 – 1771||(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
NICOZDiamond Insurance Limited rating reports, 2009-2016
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/RATING-SCALES-DEFINITIONS. 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 2016 audited annual financial statements 4 years of comparative audited numbers
- Unaudited interim results to 31 March 2017
- Budgeted financial statements for 2017
- 2017 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.
|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 more detailed glossary of term, please click here
GCR affirms NICOZDiamond Insurance Limited’s rating at A-(ZW); Outlook Stable.