Johannesburg, 17 Dec 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Professional Insurance Corporation Zambia Limited of A+(ZM); 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 Professional Insurance Corporation Zambia Limited based on the following key criteria:
Professional Insurance Corporation Zambia Limited, or PICZ (a 99.99% owned subsidiary of Finsbury Investments), is a leading Zambian non-life insurer, which accounted for 24% of the industry’s 2012 gross premiums. Its position is supported by a well-entrenched brand, a diversified distribution network, and additional capacity derived from its reinsurance programme, which enables it to underwrite mega risks without placing undue strain on its balance sheet. Note is also taken of the sound credit quality of both its treaty and facultative counterparties.
Following 2 years of GWP contraction, an overhaul of the business model enabled the company to claw back market share in F12. Nonetheless, competitive pressures remain elevated, and are likely to constrain premium growth despite PICZ’s efforts to expand its target market by developing new products targeted at SMEs and consumer lines. Despite the low retention ratio maintained over most of the review period, the insurer has consistently recorded sound technical margins and a robust gross underwriting profile. However, underwriting margin compression has resulted from rising rates pressure and the incongruously large cost base (in relation to PICZ’s business plan).
Having peaked at 102% at FYE11, the solvency margin continues to ease, and was reported at an annualised 73% at 3Q F13 (FYE12: 96%). Due to the moderately higher retention projected (driven by increased exposure to personal lines), international solvency is expected to remain largely unchanged at FYE13. Note is also taken of sizeable debtors over 180 days in arrears (equating to 20% of the capital base at FYE12), which elevate capital risk. Positively, robust cash generation saw liquidity metrics strengthen notably in F12, with cash and treasury bills representing 48% of investments, from just 22% previously. While even higher liquid asset balances are projected going forward, the protracted cash conversion cycle will constrain the improvement of liquidity measures.
Upward rating movement is unlikely in the short to medium term. Over the longer term, upward rating pressure could derive from a refinement of the industry’s regulatory framework, more comprehensive risk management policies, as well as further business and intermediary diversification, achieved against the backdrop of sound solvency and liquidity metrics. A rapid elevation of the risk threshold, placing undue pressure on solvency metrics would, however, warrant negative rating action. In addition, a materially weaker liquidity profile, resulting from a marked deterioration in claims experience, an increasingly aggressive investment profile or a poorly performing premium debtors book, would be negatively considered.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Jun/2010)|
|Claims paying ability: A+(ZM)|
|Last rating (Oct/2012)|
|Claims paying ability: A+(ZM)|
|+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.
Professional Insurance Corporation Zambia 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/s has been disclosed to Professional Insurance Corporation Zambia Limited with no contestation of the rating.
The information received from Professional Insurance Corporation Zambia Limited and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements for 2013, unaudited year to date management accounts to September 2013, the 2013 reinsurance cover notes, risk management framework and capital management policy.
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.