Johannesburg, 21 Nov 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Prima Reinsurance Plc of BBB(ZM); with the outlook accorded as Positive. Furthermore, Global Credit Ratings has affirmed the international scale rating assigned to Prima Reinsurance Plc of B ; with the outlook accorded as Stable. The rating(s) are valid until 11/2014.
Global Credit Ratings has accorded the above credit rating(s) on Prima Reinsurance Plc based on the following key criteria:
Prima Reinsurance Plc (“Prima Re”) recently raised ZMW19m from a rights offer, increasing the value of shares outstanding to ZMW30m as at 14 November 2013. This also served to diversify the shareholding profile, with no single entity controlling more than 20% of shares in issue.
While the capital injection bodes positively, GCR notes with concern the prominence of long outstanding debtors, which have inflated the premium book to 43% of the asset base, corresponding to 80% of equity at FYE12. As such, while the solvency margin may exceed 140% in F13 (F12: 79%), the poorly performing debtors book elevates asset conversion and capital risk.
Liquidity metrics eased further in F12 and into YTD F13, on the back of elevated losses and a liquid investment pool that is disproportionate to the current levels of premium growth. Cash proceeds from the rights issue should, however, boost short term liquidity significantly. In this regard, GCR would expect the maintenance of higher cash and liquidity levels, and appropriately diverse asset placement going forward.
Note is taken of the robust gross premium growth evidenced over Prima Re’s relatively short track record, underpinned by an expanding domestic presence and a growing geographic reach. The reinsurer is also making efforts to enhance risk management processes and internal policies. This included the introduction of actuarial assessments during 2012 to determine reserve adequacy. It is, however, noted that the adjustment of claims reserves to reasonable levels will be progressive. In the interim, claims have escalated sharply since F12, significantly outstripping the advance in earned premiums.
The international rating is capped by the Zambian sovereign rating of B+, as assets are locally domiciled. Albeit that secure rated retrocessionaires on the main treaties have a combined 65% participation, a number of following counterparties (as well as participants on the auto fac and secondary surplus treaties) are unsecure rated or unrated.
Upward rating pressure would result from continued market penetration, coupled with strict underwriting guidelines and appropriate claims reserving, supportive of sustainable levels of underwriting profitability. Prima Re will be also expected to demonstrate continued delivery cost containment, as well as discernible improvements in risk management processes. A persistent deterioration in asset quality or material impairments deriving from a poorly performing debtors book and (or) unduly high counterparty exposures, however, could warrant negative rating action.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2009)||Initial rating (Nov/2011)|
|Claims paying ability: BBB+(ZM)||Claims paying ability: B|
|Outlook: Positive||Outlook: Stable|
|Last rating (Oct/2012)||Last rating (Oct/2012)|
|Claims paying ability: BBB(ZM)||Claims paying ability: B|
|Outlook: Stable||Outlook: Stable|
|+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
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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.
Prima Reinsurance Plc 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 Prima Reinsurance Plc with no contestation of the rating.
The information received from Prima Reinsurance Plc and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), 2013 detailed budgeted financial statements, year to date management accounts to July 2013, the 2013 retrocession cover notes, ERM processes/framework and reserving methodologies.
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.