Johannesburg, 30 May 2014 — Global Credit Ratings (“GCR”) has today affirmed the national scale claims paying ability rating assigned to Regent Insurance Botswana (Proprietary) Limited (“Regent Botswana”) of AA-(BW); with the outlook accorded as Stable. The rating(s) are vaild until 05/2015.
SUMMARY RATING RATIONALE
Regent Botswana is a wholly owned subsidiary of South Africa based Regent (AA-(ZA); Stable outlook), which itself is 100% owned by Imperial Holdings Limited (“Imperial”), a diversified multinational mobility-focused group operating in Southern Africa, Europe and Australia. Nonetheless, Regent Botswana operates with relative independence from its South African parent with regards to most core operational functions.
The rating is supported by the insurer’s position as one of the top tier players in the Botswana short term insurance market (17% market share as per F12 financial results), buoyed by long standing affinity partnerships and sound reputational recognition. Further, strong profit generation continues to underpin capitalisation, with both the statutory and international solvency margins registeringat adequate levels over the review period. Whilst key solvency metrics are forecast to remain adequate relative to the prevailing overall risk profile, some degree of solvency easing (via increased dividend distributions) is anticipated over the short to medium term, as management strives to optimise reserving efficiency and capital utilisation in line with group policies.
The conservative investment approach adopted is supportive of a high degree of liquidity and stable investment earnings. Going forward, no material shift in the investment stance towards higher risk investments is envisaged. Reinsurance arrangements are placed mainly with highly rated, international counterparties, whilst net deductibles per risk and event are contained at acceptable levels relative to capital. In addition, risk disciplines continue to evolve, with the insurer utilising a customized ERM framework developed at group level.
Additionally, note is taken of the persistent strong underwriting margins exhibited (which continue to trend notably above the industry norm), aided by a high degree of loss predictability and a well aligned cost base. Whilst the gradual change in the business mix, coupled with increased competition at industry level is likely to give rise to some degree of margin pressure, profitability is anticipated to remain sound going forward, with projected margin levels considered to be commensurate with a rating in the AA (BW) band. However, some degree of revenue concentration persists, stemming from an increased reliance on a few select affinity partners in terms of business procurement and a sustained high dependence on motor (71% of NWP in F13), albeit note is taken of the persistently strong underwriting profits generated by this line of business.
In consideration of prevailing characteristics in the Botswana insurance arena, the industry rating ceiling remains capped at AA-(BW). In the absence of a revision thereof, an upward adjustment of the scheme’s rating (which constitutes the highest rating a short term insurer in Botswana currently can be accorded by GCR) is considered unlikely over the short to medium term. Conversely, downward rating pressure could arise from a) a decline in key solvency metrics notably below projected levels (driven by an undue curtailing of capital reserves-stemming either from a notable deterioration in operating performance or an overly aggressive dividend distribution); b) the loss of any of its key affinity partners, accompanied by a significant loss in revenue (thus adversely impacting on scale efficiencies) and/or c) a marked squeeze in underwriting margins notably below historic norms.
For a detailed glossary of terms utilised in this announcement please click here.
NATIONAL SCALE RATINGS HISTORY
Initial rating (May/2013)
Claims paying ability: AA-(BW)
Last rating (May/2013)
Claims paying ability: AA-(BW)
Senior Credit Analyst
+27 11 784 1771
Sector Head: Insurance
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013).
Regent Insurance Botswana (Proprietary) Limited rating report 2013.
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/RATING-SCALES-DEFINITIONS. 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
Regent Insurance Botswana (Pty) Ltd 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 Regent Insurance Botswana (Pty) Ltd with no contestation of the rating.
The information received from Regent Insurance Botswana (Pty) Limited and other reliable third parties to accord the credit rating included the audited annual
financial statements for F13 (plus four years of comparative numbers), latest internal and/or external report to management, full year F14 detailed budgeted financial statements, reinsurance cover notes for 2014 and most recent year-to-date management accounts to 30 April 2014. In addition, information specific to the rated entity and/or industry was also received.
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.
GCR affirms Regent Insurance Botswana (Proprietary) Limited’s rating of AA-(BW); outlook Stable