Johannesburg, 22 Jun 2015, Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Regent Insurance Botswana (Proprietary) Limited at AA-(BW); with the outlook accorded as Stable. This rating is valid until May 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Regent Insurance Botswana (Proprietary) Limited (“Regent Botswana”) based on the following key criteria:
Regent Botswana’s corporate profile is buoyed by its position as one of the top tier players in the Botswana short term insurance market, leveraging long standing affinity partnerships and sound reputational recognition. Profitability has been maintained at strong levels over the review period, with the underwriting margin registering consistently above the 17% mark. This has been supported by a high degree of loss predictability and a well aligned cost base. In anticipation of sustained strong operational disciplines, margin levels are expected to be maintained above the industry aggregate over the short term to medium term, with profitability viewed as a key rating strength.
Capital accumulation continues to be supported by strong operating profits and a reasonable stance with respect to dividend distribution, thereby supporting key solvency metrics and risk based capitalisation at moderately strong levels. Going forward, capital is expected to be gradually managed down in order to emphasise efficiency and capital utilisation in line with group policies. Nevertheless, capital deployment, subsidised by sustained profitability, is expected to support key solvency metrics within the boundaries of the current rating level. Further, the sustained commitment to a conservative investment allocation supports a strong liquidity position and predictable investment earnings. Over the medium term, GCR does not envisage the investment stance to be altered materially.
The restructuring of treaty reinsurance agreements in 2015 has seen scope for cover increase notably, while maximum risk retention per risk and event were reduced to a well contained level (0.7% of capital at FYE14). Furthermore, reinsurance placements pertain mainly to well rated participants.
The industry rating ceiling is capped at AA-(BW), which constitutes the highest rating a short term insurer in Botswana currently can be accorded by GCR. In the absence of a revision thereof, an upward adjustment of the insurer’s rating is considered unlikely over the short to medium term. Downward rating pressure could arise from 1) a decline in key solvency metrics notably below projected levels (driven by a curtailing of capital reserves, stemming either from a notable deterioration in operating performance or an overly aggressive dividend distribution); 2) the loss of any of its key affinity partners, accompanied by a significant loss in revenue (thus adversely impacting on scale efficiencies) and/or 3) a marked contraction in underwriting margins notably below historic norms.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (May 2013)|
|Claims paying ability: AA-(BW)|
|Last rating (May 2014)|
|Claims paying ability: AA-(BW)|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014
Regent Insurance Botswana (Proprietary) Limited rating reports, 2013-2014
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.
Regent Insurance Botswana (Proprietary) 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 has been disclosed to Regent Insurance Botswana (Proprietary) Limited with no contestation of the rating.
The information received from Regent Insurance Botswana (Proprietary) Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements for 2014 (plus four years of comparative numbers), full year detailed budgeted financial statements for 2015, most recent year to date management accounts up to March 2015, the current year reinsurance cover notes, 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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Assets||The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|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||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|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.|
|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.|
For a detailed glossary of terms utilised in this announcement please click here