Announcements

GCR affirms Old Mutual Insurance Company (Private) Limited’s rating of A+(ZW); Outlook Stable

Johannesburg, 10 Jun 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Old Mutual Insurance Company (Private) Limited of A+(ZW), with the outlook accorded as Stable. The rating is valid until May 2017.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Old Mutual Insurance Company (Private) Limited (“OMICO”) based on the following key criteria:

OMICO’s capitalisation has been maintained at very strong levels, with the international solvency margin continuing on an upward trajectory to a review period high of 68% in FY15. GCR expects risk adjusted capital adequacy to be sustained at very healthy levels going forward, supported by robust internal capital generation, well managed underwriting risk, and a conservative on-take of asset risk.

Liquidity metrics have been maintained at very strong levels, underpinned by robust operating cash generation. In this regard, claims cash cover stood at 15 months and cash cover of net technical liabilities stood at 1.8x. This trend is expected to persist going forward. Sound liquidity metrics are complemented by the conservative investment strategy adopted by the insurer, limiting exposure to market risk.

OMICO reflects a very strong competitive position. The insurer maintained its position as the leading company by GWP for the third consecutive year. The insurer’s market share rose to 17% in FY15 (FY14: 14%), supported by growth in key portfolios. Competitive positioning is further bolstered by the insurer’s very strong comparative performance. OMICO’s very strong market position and comparative performance is expected to be maintained going forward.

OMICO continues to display very strong and stable earnings capacity. The underwriting margin registered at a robust 17% in FY15, and has averaged a similarly high level over the past four years. This has been a function of the very well-managed expense base, coupled with a high degree of loss ratio containment. OMICO is expected to sustain earnings strength going forward.

Reinsurance arrangements are placed with counterparties with high to mid-level national scale ratings, while the maximum net deductible per risk and event is contained to a conservative 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.

This notwithstanding, OMICO’s rating pierces the national scale rating ceiling of A-(ZW) currently applicable to Zimbabwean insurers. The ability of the insurer to pierce the national scale rating ceiling is a result of the strategic alignment with ultimate shareholder Old Mutual Plc, and the Old Mutual group of companies.

An upgrade is considered unlikely, given that the insurer’s rating has pierced the national scale ceiling applicable to entities operating within the Zimbabwean insurance industry. Downward rating pressure may arise from a persistent deterioration in underwriting performance, coupled with a weakening in key credit protection measures. Further, deterioration in country risk factors continues to represent a key downside risk to insurers in the market.

NATIONAL SCALE RATINGS HISTORY
 
Initial rating (May 2009)
Claims paying ability: A-(ZW)
Outlook: Stable
 
Last rating (May 2015)
Claims paying ability: A+(ZW)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Catherine Zimba
Credit Analyst
(011) 784-1771
catherinez@globalratings.net
 
Committee Chairperson
Marc Chadwick
Sector Head: Insurance Ratings
(011) 784-1771
chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Insurance Companies, updated July 2015

Old Mutual Insurance Company (Private) Limited rating reports, 2009-2015

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.

Old Mutual Insurance Company (Private) 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 Old Mutual Insurance Company (Private) Limited with no contestation of the rating.

The information received from Old Mutual Insurance Company (Private) Limited and other reliable third parties to accord the credit rating included:

  • The 2015 audited annual financial statements
  • 4 years of comparative audited numbers
  • Unaudited interim results as per 31 March 2016
  • Budgeted financial statements for 2016
  • 2016 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

GCR affirms Old Mutual Insurance Company (Private) Limited’s rating of A+(ZW); Outlook Stable

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