Announcements Insurance Rating Alerts

GCR affirms OMICO’s AA-(ZW) national scale financial strength rating, revises Outlook from Negative to Stable on improved earnings prospects

Rating Action

Johannesburg, 15th June 2021 – GCR Ratings (“GCR”) has affirmed Old Mutual Insurance Company (Private) Limited’s (“OMICO”) national scale financial strength rating of AA-(ZW), with the Outlook revised to Stable, from Negative.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Old Mutual Insurance Company (Private) Limited Financial Strength National AA-(ZW) Stable Outlook

Rating Rationale

OMICO’s rating affirmation reflects the resilience of its credit profile to the high-risk operating environment, evidenced by a recovery in competitive position and a strengthening in the financial profile during the review year. This is complemented by implicit group support from OMICO’s parent, Old Mutual Zimbabwe Limited, noting a high level of integration into the parent’s business model. GCR is of the view that the insurer’s ability to recover its market share and turn around earnings reflects OMICO’s resilience and ability to withstand downside risks to a degree; hence the change in the Outlook to Stable.

Earnings strengthened in FY20, supported by a turnaround in underwriting profitability and sound investment income on an inflation adjusted basis. The underwriting margin registered at 32% (FY19: -12%), largely underpinned by a favourable claims experience and a more competitive cost structure. As such, the net incurred loss ratio registered at 35% (FY19: 67%), while the operating expense ratio equated to 31% (FY19: 45%), due to lower claims frequency and contained operating costs, as well as enhanced premium scale. We expect underwriting profitability to register within a positive range, albeit lower than FY20 levels given an expected normalisation in claims. Furthermore, the lower net monetary losses due to the introduction of foreign currency further supported the insurer’s net profitability with net profit after tax amounting to ZWL317m (FY19: -ZWL835m). Strengthened earnings are expected to be maintained over the rating horizon, supported by relative exchange rate stability introduced by the auction system as well as lowering inflation rates.

OMICO’s capital increased by 6% to USD10.0m at FY20 (FY19: USD9.4m), with capital growth attributable to healthy internal capital generation. The GCR capital adequacy ratio (“CAR”) improved to 1.4x (FY19: 1.0x) supported by the increase in the capital base catering for the quantum of risks. Risk adjusted capitalisation is expected to remain within the same level supported by sound internal profit generation.

Liquidity is assessed within a moderately strong range, supported by sound internal cash generation. In this respect, cash and stressed financial assets coverage of net technical liabilities and operating costs registered at 2.4x (FY19: 1.4x), while operational cash coverage equated to 9 months (FY19: 6 months). Going forward, liquidity metrics are expected to be sustained within a similar level supported by management’s strategy to increase investments in liquid assets.

The recovery in OMICO’s competitive position is underpinned by the reintroduction of foreign denominated policies, which supported a recovery in market share to 15% in FY20 (FY19: 12%; FY18: 15%). Going forward, growth is expected to emanate from organic growth, mainly driven by cross-selling within the group. In GCR’s view the targeted growth rate is expected to maintain competitiveness over the medium term. OMICO’s business mix is viewed to be well diversified with four lines of business contributing materially to revenue. The portfolio is dominated by property and motor books in line with industry norms, accounting for 29% and 28% of gross premiums respectively. Premium diversification is partially offset by geographic concentration to the primary market.

OMICO’s rating derives upliftment from implied parental support from Old Mutual Zimbabwe Limited, given its strategic integration and alignment with group risk and capital management frameworks.

Outlook Statement

The Stable Outlook is premised on expectations that the insurer will stabilise competitive position and maintain earnings within a rating adequate range over the rating horizon. The GCR CAR is expected to remain within the current range, balancing growth in underwriting risks and internal capital generation.

Rating Triggers

An upgrade of the national scale rating is likely to follow sustained improvement in competitive strength and sustained earnings strength positively impacting risk adjusted capitalisation and liquidity. Negative rating action could result from a sustained lowering in capitalisation and liquidity metrics due to growth pressures.

Analytical Contacts

Primary analyst Linda Matavire Analyst: Insurance Ratings
Johannesburg, ZA LindaM@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
Jurisdictional Supplement for Criteria, July 2020
GCR Country Risk Scores, June 2021
GCR Insurance Sector Risk Scores, April 2021

0263

Ratings History

Old Mutual Insurance Company (Private) Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Claims Paying Ability Initial National A-(ZW) Stable Outlook May 2009
Financial Strength Last National AA-(ZW) Negative Outlook July 2020

Risk Score Summary

Rating Components and Factors Risk score
Operating environment 2.75
Country risk score 0.00
Sector risk score 2.75
Business profile 0.50
Competitive position 1.00
Premium diversification (0.50)
Management and governance 0.00
Financial profile 0.50
Earnings (0.25)
Capitalisation 0.25
Liquidity 0.50
Comparative profile 1.00
Group support 1.00
Government support 0.00
Peer analysis 0.00
Total score 4.75

Glossary

Premium The price of insurance protection for a specified risk for a specified period of time.
Primary Market The part of the capital markets that deals with the issuance of new securities.
Private An issuance of securities without market participation, however, with a select few investors. Placed on a private basis and not in the open market.
Property Movable or immovable asset.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
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 (1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.
Reserves A portion of funds allocated for an eventuality.
Retention The net amount of risk the ceding company keeps for its own account.
Revaluation Formal upward or downward adjustment to assets such as property or plant and equipment.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Secondary Market The secondary market is where securities are bought and sold once they have been issued in the primary markets.
Security One of various instruments used in the capital market to raise funds.
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.
Spread The interest rate that is paid in addition to the reference rate for debt securities.
Technical Liabilities The sum of Net UPR and Net OCR IBNR.
Technical Margin Measures the percentage of net earned premiums remaining after accounting for claims and expenses incurred.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
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.
Upgrade The rating has been raised on its specific scale.

Salient Points of Accorded Rating

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 was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was 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 party. 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 information received from the entity and other reliable third parties to accord the credit rating included:

  • Audited financial statements as at 31 December 2020;
  • Four years of comparative audited financial statements to 31 December
  • Full year budgeted financial statements for 2021;
  • Unaudited interim results to 30 April 2021
  • Reinsurance cover notes for 2021;
  • Other relevant documents.


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2022 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.