Announcements

GCR affirms Regent Insurance Botswana (Proprietary) Limited’s rating at AA- (BW); Stable Outlook.

Johannesburg, 8 July 2016 — Global Credit Ratings has today affirmed the national claims paying ability rating assigned to Regent Insurance Botswana (Proprietary) Limited of AA-(BW), with the Outlook accorded as Stable. The rating is valid until June 2017.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Regent Insurance Botswana (Proprietary) Limited (“Regent Botswana”) based on the following key criteria:

The rating takes into consideration the intended purchase of Regent Group by The Hollard Insurance Group. This corporate activity will subsequently impact on the ultimate shareholder of Regent Botswana. The transaction is currently subject to regulatory approval. Accordingly, the rating factors in potential for the change in ownership structure, as well as Regent Botswana’s business plan under new ownership, to impact the insurer’s credit profile going forward.

Regent Botswana reflects very high earnings capacity. A very strong level of profitability has been maintained throughout the review period, with the underwriting margin averaging 19% over the past five years. 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 to medium term, with an underwriting margin of 14% projected in FY16. Solid earnings support has been derived from stability in asset allocation towards fixed income instruments.

The Insurer’s capitalisation is viewed to be very strong, underpinned by high levels of risk adjusted capital adequacy. In terms of the latter, the solvency margin has been well managed in a range of 75% to 85% throughout the review period. Solvency equated to 75% at FYE15, and is projected to be fairly stable at 78% in FYE16. Risk adjusted capitalisation has been supported by contained levels of insurance risk growth, coupled with minimisation of market risk exposure. Going forward, capital is expected to be gradually managed down in order to optimise reserving efficiency and capital utilisation in line with group policies.

Liquidity is very strong, with claims cash coverage registering at 29 months in FY15, and cash coverage of technical provisions equating to 2x. Going forward, the insurer’s liquidity strength is expected to be supported by the sustained commitment to a conservative investment allocation strategy.

The rating is supported by Regent Botswana’s position as one of the leading players in the Botswana short term insurance market. The insurer’s market share equated to 13% in FY15. Competitive positioning leverages long standing affinity partnerships and sound reputational recognition.

Material reinsurance counterparties evidence an intermediate aggregate level of counterparty strength, while the net deductible per risk and event is viewed to be set at a conservative level.

Regent’s rating currently matches the national scale ceiling applicable to entities operating within the Botswana short term insurance industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. Downward rating pressure could emanate from a prolonged weakening in earnings capacity, a sustained loss of market share and/or a further weakening in liquidity metrics.

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating: May 2013    
Claims paying ability: AA-(BW)    
Outlook: Stable    
     
Last rating: May 2015    
Claims paying ability: AA-(BW)    
Outlook: Stable    

ANALYTICAL CONTACTS

Primary Analyst   Secondary Analyst
Marc Chadwick   Zwivhuya Mukosi
Sector Head: Insurance Ratings   Junior Analyst
(011) 784-1771   (011) 784-1771
chadwick@globalratings.net   zwivhuyam@globalratings.net
     
Committee Chairperson    
Susan Hawthorne    
Senior Credit Analyst    
(011) 784-1771    
susanh@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2015

Regent Insurance Company Limited rating reports, 2013-2015

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 ratings were influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Regent Insurance Company 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 ratings have been disclosed to Regent Insurance Botswana (Proprietary) Limited with no contestation of the ratings.

The information received from Regent Insurance Botswana (Proprietary) Limited and other reliable third parties to accord the credit rating included:

  • The audited annual financial statements as at FYE15.
  • 4 years of comparative audited numbers
  • Unaudited interim results as at April 2016
  • Budgeted financial statements for 2016
  • 2016 reinsurance cover notes
  • Other related documents.

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.

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 please click here

GCR affirms Regent Insurance Botswana (Proprietary) Limited’s rating at AA-(BW); Stable Outlook.

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