Johannesburg, 09 Dec 2014 — Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to Professional Insurance Corporation Zambia PLC of A+(ZM); with the outlook accorded as Negative. The rating is valid until 11/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Professional Insurance Corporation Zambia PLC (“PICZ”) based on the following key criteria:
The Negative Outlook reflects GCR’s view of PICZ’s lowering levels of risk adjusted capitalisation (F11: 102%; F13: 79%; BYE15: 63%), owing to aggressive dividend and net premium retention strategies, limiting capital growth. This is compounded by the sustained low claims reserving metrics, which give rise to a degree of balance sheet risk.
Rating strength continues to derive from PICZ’s leading market position, supported by a well-entrenched brand and diversified distribution network. As such, competitive positioning has been measured at strong levels and represents a core component of the insurer’s rating. GCR expects the insurer’s market share to remain sound going forward, as its expansion strategy and new product development counteract competitive pressures from new entrants gaining traction.
PICZ has registered strong underwriting profitability over the review period, albeit exhibiting high levels of volatility. The underwriting margin equated to a higher 22% in F13 (F12: 18%), supported by a competitive loss ratio offsetting an elevated cost base. Sound investment income further enhances the insurer’s net profitability. GCR expects profitability to be sustained through cost moderation.
Cash generation, whilst improving, has been significantly hampered by the large quantum of balance sheet funding tied up in receivables (F13: 68%). Accordingly, cash represents a relatively constrained portion of the capital base (33%) and the balance sheet (17%). Cash covered net technical liabilities by a higher 1.1x (F12: 0.8x), although note is taken of the very low claims reserves. Operational liquidity has been measured at intermediate levels, with claims cash coverage increasing to 10 months in F13, and total underwriting outflow coverage amounting to 4.6 months.
The reinsurance programme enhances PICZ’s capacity, with deductibles limiting retained risks to conservative levels. Comfort is also derived from the sound credit quality of its treaty counterparties.
Negative rating action is likely to occur should the insurer’s solvency metrics fall to budgeted levels and claims reserves remain at unsustainably low levels. Furthermore, a deterioration in liquidity metrics and/or substantial loss in market share, coupled with sustained underwriting deficits, could result in a downgrade. Conversely, positive rating action on the symbol or outlook may result from a strengthening in risk adjusted capitalisation over the rating horizon, coupled with a capital management strategy that preserves minimum solvency thresholds. Furthermore, improved claims reserving metrics, and an independent assessment of claims reserving sufficiency, would be positively viewed.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (Jun/2010)
Claims paying ability: A+(ZM)
Last rating (Nov/2013)
Claims paying ability: A+(ZM)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, Updated July 2014
Professional Insurance Corporation Zambia PLC (“PICZ”) rating reports, 2010-2013
RATING LIMITATIONS AND DISCLAIMERS
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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 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 has been disclosed to Professional Insurance Corporation Zambia PLC with no contestation of the rating.
The information received from Professional Insurance Corporation Zambia PLC and other reliable third parties to accord the credit rating included the 2013 audited annual financial statements (plus four years of comparative numbers), full year budgets for 2014 and 2015, unaudited year to date management accounts to September 2014, the current year reinsurance cover notes, statutory reporting submissions and 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.
GCR affirms Professional Insurance Corporation Zambia PLC’s national scale rating at A+(ZM); Outlook Negative