Announcements

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

Johannesburg, 29 May 2017 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Old Mutual Insurance Company (Private) 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 Old Mutual Insurance Company (Private) Limited (“OMICO”) based on the following key criteria:

OMICO’s risk adjusted capitalisation remained at very healthy levels over the review period, underpinned by a sizeable capital base catering for the quantum of insurance and market risk exposures. In this respect, the international solvency margin equated to a high of 79% at FY16 (FY15: 68%). GCR expects risk adjusted capitalisation to remain at very strong levels over the rating horizon, supported by robust internal capital generation, well contained dividend distributions, well managed underwriting risk, and a moderately conservative take on of asset risk.

Key liquidity measures have been maintained at very strong levels, underpinned by robust operating cash generation. In this respect, cash coverage of net technical liabilities equated to 1.5x (FY15: 1.8x), while the claims cash cover ratio registered at a high 14 months (FY15: 15 months). This trend is expected to persist going forward, given management’s commitment to maintaining a balanced investment approach.

The insurer’s business profile is strong, supported by very strong competitive positioning and fairly well diversified earnings (albeit evidencing a heavy reliance on property and motor in line with industry norms). The insurer remained the market leader, with a market share of 17% of total short term industry gross premiums in FY16. Competitive positioning may be bolstered further by cross-selling of products across the group underpinned by the common branding.

Earnings capacity is viewed to be very strong, supported by robust and stable underwriting profitability. In this respect, the five year underwriting margin equated to 18% (FY16: 18%; FY15: 17%). This has been a function of the very well-managed expense base, coupled with a high degree of loss ratio stability. GCR views the insurer’s demonstrated track record of underwriting profitability as indicative of earnings capacity going forward.

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 actuary.

GCR views the insurer to have high strategic importance to the group, given the brand alignment. This view is further substantiated by OMICO’s demonstrated track record of achieving profitable growth in line with group objectives. As such, OMICO is viewed to benefit from potential extraordinary support from the Old Mutual group. As such, the insurer’s standalone credit profile derives upliftment from implicit group support.

GCR views country risk factors to be elevated, and a systemic 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.

An upgrade is considered unlikely, given that the insurer’s rating pierced the national scale ceiling applicable to entities operating within the Zimbabwean insurance industry. However, upward movement of the rating may follow an assessment of country and industry risk factors. Conversely, 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 (post US dollarisation May 2009)
Claims paying ability: A-(ZW)
Outlook: Stable
 
Last rating (June 2016)
Claims paying ability: A+(ZW)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst Committee Chairperson
Yvonne Mujuru Marc Chadwick
Sector Head: Insurance Ratings Sector Head: Insurance Ratings
(011) 784 – 1771 (011) 784 – 1771
ymujuru@globalratings.net chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2016

Old Mutual Insurance Company (Private) Limited rating reports, 2015-2016

RM Insurance Company Limited (Private) 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/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.

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 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.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY

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 terms, please click here

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

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