Announcements Insurance Rating Alerts

GCR affirms NICOZDiamond’s national scale financial strength rating of A+(ZW); Outlook Stable

Rating Action

Johannesburg, 25 June 2021 – GCR Ratings (“GCR”) has affirmed NICOZDiamond Insurance Limited’s (“NICOZDiamond”) national scale financial strength rating of A+(ZW), with a Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
NICOZDiamond Insurance Limited Financial strength National A+(ZW) Stable Outlook

Rating Rationale

The rating of NICOZDiamond reflects the strengths and weaknesses of NICOZDiamond and its subsidiary (“the group”). The group’s credit profile is largely driven by the Zimbabwean core entity, given its 98% contribution to the group’s revenue in FY20. The group’s rating reflects a strong financial profile and healthy business profile. These credit positives are partially diluted by comparatively limited premium diversification and liquidity metrics.

The groups’ financial profile has remained strong, supported by strong capitalisation and sound earnings generation. Risk adjusted capitalisation remained strong with the GCR CAR registering at a stable 1.7x over the past two years, as it was sustained by internal capital generation. The capital base also increased to USD11m at FY20 as the economy experienced relative stability of the exchange rate and the uptake of USD denominated business improved, recovering from capital erosion to USD9,6m at FY19 (FY18: USD14,7m) due to currency devaluation, The group’s capitalisation is also augmented by regional diversification through NICOZDiamond’s associate in Malawi and a subsidiary in Mozambique. The capital position is expected to remain strong, supported by strong earnings generation as the entity recorded healthy underwriting profitability, with an underwriting margin of 17% in FY20 (FY19: 8%). Strong earnings in FY20 were driven by lower claims frequency during the year as a consequence of the lockdown, with the net incurred loss ratio equating to 34% (FY19: 46%). GCR expects the claims ratio to increase over the medium term as the operating environment stabilises. In this respect, the ability of the group to manage earnings within a sound range over the outlook period is considered a key rating input.

NICOZDiamond’s liquidity position experienced a marginal improvement, with cash and stressed assets coverage of net technical liabilities registering at 2.8x at FY20 (FY19: 2.4x) and coverage of operational requirements at 8 months (FY19: 3.7months). Improved metrics were on the back of an increased allocation to liquid investments of 17% (FY19: 12%) of total investments, albeit with concentration to investment property restraining the factor’s assessment. Despite the reduction of investment property exposure to 59% at FY20 (FY19: 70%), the company’s concentration to the asset class remains relatively high and constitutes a rating concern, especially on the backdrop of reducing inflationary pressures.

NICOZDiamond’s competitive position has remained strong as the entity regained its market share after an adjustment in FY19 as a top tier player in the short-term insurance market. Nonetheless, the overall business profile assessment is moderated by comparatively limited premium diversification, with two lines of business contributing materially to gross premiums.

NICOZDiamond’s rating also benefits from integration and affiliation with the wider First Mutual Holdings Limited group “FMHL”, given evidence of history of support and operational integration.

Outlook Statement

The Stable Outlook reflects anticipated consistency in the financial profile, supported by expectations of increasing stability in the economic environment, ensuring the maintenance of strong capitalisation and a healthy earnings position (profitability metrics likely to moderate in line with the current assessment of a healthy earnings profile). GCR also expects the insurer to maintain a healthy market position and financial profile.

Rating Triggers

Potential for upward rating movement could result from a sustained strengthening in earnings and an improvement in asset quality that supports stronger and stable liquidity and capitalisation metrics. Conversely, downward rating pressure may arise from a material deterioration in credit protection metrics.

Analytical Contacts

Primary analyst Victor Matsilele Analyst: Insurance Ratings
Johannesburg, ZA VictorM@GCRratings.com +27 11 784 1771
Committee chair Godfrey Chingono Deputy Sector Head: Insurance Ratings
Johannesburg, ZA GodfreyC@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Insurance Companies, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, June 2021
GCR Insurance Sector Risk Scores, April 2021

Ratings History

NICOZDiamond Insurance Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Claims paying ability Initial National A-(ZW) Stable May 2009
Financial strength Last National A+(ZW) Stable July 2020

Risk Score Summary

Rating Components & Factors Risk scores
Operating environment 2.75
Country risk score 0.00
Sector risk score 2.75
Business profile 0.25
Competitive position 1.00
Premium diversification (0.75)
Management and governance 0.00
Financial profile 0.50
Earnings 0.25
Capitalisation 1.00
Liquidity (0.75)
Comparative profile 0.75
Group support 0.75
Government support 0.00
Peer analysis 0.00
Total Score 4.25

Glossary

Premium The price of insurance protection for a specified risk for a specified period of time.
Property Movable or immovable asset.
Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
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.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
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 Solvency Margin Gives an indication as to whether the minimum regulatory solvency margin is being met, based on the net statutory assets to statutory net premiums ratio.
Statutory Required by or having to do with law or statute.
Technical Liabilities The sum of Net UPR and Net OCR IBNR.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
Underwriter In a general sense, an underwriter is a person or company that assumes financial risk. In corporate analysis an underwriter refers to a financial institution closely involved in the pricing and distribution of a new issue of a security and who accepts the obligation to purchase all securities not sold to outside investors. In insurance, and underwriter evaluates risk and exposures of potential clients

SALIENT POINTS OF ACCORDED ASSESSMENT

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating is based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating is an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to the rated entity. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

  • The audited financial results up to 31 December 2020
  • Four years of comparative audited numbers to 31 December
  • Unaudited interim results up to 31 March 2021
  • Budgeted financial statements to 31 December 2021
  • Other related documents.


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