Johannesburg, 03 June 2014 — 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(s) are valid until 05/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (‘GCR”) has accorded the above credit rating(s) to NICOZDIAMOND Insurance Ltd (“NICOZDIAMOND”) based on the following key criteria:
NICOZDIAMOND emanated from the merger of previously state-owned NICOZ Insurance Company and DIAMOND Insurance in 2002. The group mainly comprises the wholly owned Zimbabwean insurance operation, complemented by regional interests in Zambia, Malawi and Uganda. NICOZDIAMOND is a listed entity on the Zimbabwe Stock Exchange, with no single shareholder owning more than 33% as at FYE13. The rating is underpinned by the insurer’s market position as an established top tier player in the domestic non-life insurance arena, which continues to strengthen amidst a persistently robust, above industry average premium growth trajectory.
The moderately balanced investment portfolio is supportive of adequate key liquidity metrics, although some degree of investment risk persists amidst an increasing prominence of illiquid subsidiary and property investments (39% of capital at FYE13). This notwithstanding, the quality of the balance sheet is considered relatively sound in the absence of any material banking counterparty exposures. However, strong premium growth amidst a moderate degree of capital accumulation has seen international solvency follow a downward trend in recent years, to equate to a review period low 58% in F13. Premised on an aggressive growth target for F14, international solvency is forecast to recede further to 49%, which is considered the minimum level for the current rating.
Note is taken of the sustained improvement in underwriting profitability exhibited since F10, with the insurer generating positive margins over the past two years under review. This has been underpinned by a stable earned loss ratio and the realisation of improved scale efficiencies, which supports an increased level of cost absorption.
Whilst net retentions per risk and event are contained at acceptable levels relative to capital, the credit quality of the insurer’s reinsurance panel consists of participants that are either unrated or reflect mid to low level ratings. Despite recent improvements, operational challenges are likely to persist given the highly uncertain socio-political outlook, weak macroeconomic fundamentals and low industry entry barriers.
Given that NICOZDIAMOND’s national scale rating currently matches GCR’s rating ceiling applicable for the Zimbabwean market, an upgrade of the rating is considered unlikely in the absence of a review of key industry risk factors. 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. The highly uncertain socio-political outlook is likely to exacerbate challenges within the operating climate, constraining capital inflows and economic growth. Should this deteriorate further, the rating ceiling of the insurance sector may be reviewed.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (May/2009)
Claims paying ability: A-(ZW)
Last rating (May/2013)
Claims paying ability: A-(ZW)
|Primary Analyst||Secondary Analyst|
|Benjamin Schmidt||Eric Mafu|
|Senior Analyst||Junior Analyst|
|(011) 784-1771||(011) 784-1771|
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013)
NICOZDIAMOND rating reports, 2009-2013
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 Ltd 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 NICOZDIAMOND Insurance Ltd with no contestation of the rating.
The information received from NICOZDIAMOND Insurance Ltd and other reliable third parties to accord the credit rating(s) included the available audited annual financial statements for FYE13 (plus four years of comparative numbers), latest internal and /or external report to management, full year detailed budgeted financial statements for 2014, the 2014 reinsurance cover notes and other documentation related to the rating exercise.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.