Johannesburg, 05 Dec 2016 — 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 Stable. The rating is valid until November 2017.
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:
PICZ reflects strong risk adjusted capitalisation, underpinned by relatively well contained insurance risks and limited market exposures. In this respect, the international solvency margin registered at a relatively stable 74% at FYE15 (FYE14: 75%). Adjusting for low claims reserves, capital adequacy remains within a moderately strong range. High internal capital generation, together with consistent dividend distributions, are likely to maintain risk adjusted capital adequacy measures within a strong range over the rating horizon.
Competitive positioning is viewed to be strong, representing a core component of the rating. The insurer is the market leader in the domestic arena, with a market share of 23% of total short term industry gross premiums in FY15, roughly in line with the five year average of 24%. Competitive positioning is supported by a well-entrenched brand, franchise value and diversified distribution network. As such, GCR expects the insurer to defend its healthy market position over the rating horizon, as the expansion strategy and new product development counteract increasing competitive pressures from new entrants.
Earnings capacity is viewed to be robust, largely underpinned by very strong underwriting margins and sound investment returns. In this respect, the insurer’s five year aggregated underwriting margin equates to 18% (FY15: 20%; FY14: 21%). GCR views the insurer’s track record as indicative of medium terms earnings capacity going forward.
Cash and equivalents continued to increase to ZMW45m at FYE15 (FYE14: ZMW30m). Growth in liquid assets was underpinned by improvements in operating cash flow generation, and supported by conservative asset allocation. As such, cash coverage of net technical provisions equated to a high 1.8x (FYE14: 1.3x), while average monthly claims cash cover was 10 months (FYE14: 8 months). GCR expects liquidity metrics to remain at strong levels, underpinned by sound operating cash flow generation.
The maximum net deductibles per risk and event were maintained at a very conservative level. Furthermore, reinsurance arrangements are placed with well rated counterparties, containing reinsurance risk at a very low level.
PICZ is viewed to reflect low reserving metrics in comparison to regional norms. In this respect, the ratio of net outstanding claims reserves to NWP amounted to a very low 0.5% in FY15 (FY14: 0.8%). No actuarial assessments are made to ascertain the adequacy of reserves, although external auditors carry out annual reviews, with periodic on-site inspections conducted by the regulator. As such, GCR would positively view an independent assessment of reserving adequacy.
Motor represents the bulk of the insurer’s risk base (FY15: 73%; FY14: 78%), albeit that this is partially mitigated by the high granularity of the line’s policy count, as well as the low product risk (reflected by the consistent underwriting profitability achieved throughout the review period).
Upward rating movement may result from adjusted capital adequacy and/or liquidity registering at strong levels. Furthermore, an independent assessment of claims reserving sufficiency would be positively viewed. Conversely, the rating may be downgraded if the insurer’s risk adjusted capitalisation and/or liquidity metrics deteriorate below expectations. Furthermore, a substantial loss in market share, coupled with sustained underwriting deficits, may result in negative rating movements.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (June 2010)|
|Claims paying ability: A+(ZM)|
|Last rating (November 2015)|
|Claims paying ability: A+(ZM)|
|Primary Analyst||Secondary Analyst|
|Yvonne Masiku||Zwivhuya Mukosi|
|Senior Credit Analyst||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
PICZ rating reports, 2010-2015
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. 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.
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:
- Audited financial results to 31 December 2015
- Four years of comparative audited numbers
- Unaudited interim results to 30 September 2016
- Budgeted financial statements for 2016
- The current year reinsurance cover notes
- Statutory returns to 31 December 2015, and
- Other related documents.
The rating above was solicited by, or on behalf of, the 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/acronyms used as per GCR insurance glossary, please click here
GCR affirms Professional Insurance Corporation Zambia Plc’s rating at A+(ZM); Outlook Stable