Announcements Insurance Rating Alerts

GCR affirms Renasa Insurance Company Limited’s national scale financial strength rating of A-(ZA); Outlook Stable

Rating Action

Johannesburg, 22 November 2019 – GCR Ratings (“GCR”) has affirmed Renasa Insurance Company Limited’s (“Renasa”) national scale financial strength (formerly claims paying ability) rating of A-(ZA), with a Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Renasa Insurance Company Limited Financial strength National A-(ZA) Stable Outlook

GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for Renasa was placed ‘Under Criteria Observation’. GCR finalised the review for Renasa under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for Renasa has been reviewed in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.

Rating Rationale

Renasa’s national scale financial strength rating reflects the insurer’s very strong liquidity and adequate capitalisation, which are offset by a comparatively weak business profile.

The insurer’s financial profile is supported by very strong liquidity, underpinned by sound stressed financial asset coverage of technical liabilities and underwriting expenses. GCR expects the insurer’s liquidity to remain at similar levels going forward, given a conservative asset allocation. Renasa’s risk adjusted capitalisation is neutral to the rating with Solvency Capital Requirement (“SCR”) coverage viewed to be adequate and expected to be maintained within the internal target band.

Earnings is viewed to be intermediate, reflecting review period volatility in underwriting performance. The five year average underwriting margin and return on revenue equated to -0.1% and 8% respectively. Earnings were suppressed in FY19, given the higher claims experience observed on select motor books. Going forward, a degree of execution risk is implied in terms of managing underwriting profitability and growth appetite, which will form a key rating consideration over the medium term.

The insurer reflects a moderate market position with a market share of 1.5%. Renasa has limited premium scale on a net basis, which is a function of reinsurance utilisation, with an average retention ratio of 11% over the review period. Furthermore, premium diversification is viewed to be limited given the dominance of the broader motor class in the business mix and geographic concentration to South Africa.

Outlook Statement

The Stable Outlook reflects expectations that the financial profile will continue to be supported by very strong liquidity and adequate earnings and capitalisation, while the business profile is not expected to change materially over the outlook horizon.

Rating Triggers

Positive rating action could develop on the back of sustained improvement in earnings, a strengthening in risk adjusted capitalisation and/or an enhanced business profile. Conversely, downward rating pressure may arise from risk adjusted capitalisation registering below expectations, or from a sustained weakening in earnings.

Analytical Contacts

Primary analyst Vinay Nagar Senior Analyst
Johannesburg, ZA Vinay@GCRratings.com +27 11 784 1771
Secondary analyst Siyuan Lu Associate Analyst
Johannesburg, ZA SiyuanL@GCRratings.com +27 11 784 1771
Committee chair Susan Hawthorne Senior Analyst
Johannesburg, ZA SusanH@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Insurance Companies, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, June 2019
GCR Insurance Sector Risk Scores, November 2019

Ratings History

Rating class Review Rating scale Rating Outlook/Watch Date
Claims paying ability Initial National BBB+(ZA) Stable September 2006
Last National A-(ZA) Stable December 2018

Risk Score Summary

Risk scores Renasa Insurance Company Limited
Operating environment 16.25
Country risk score 7.50
Sector risk score 8.75
Business profile (3.00)
Competitive position (2.00)
Premium diversification (1.00)
Management and governance 0.00
Financial profile 0.50
Earnings (0.75)
Capitalisation 0.00
Liquidity 1.25
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 13.75

Glossary

Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
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.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
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.
Retention The net amount of risk the ceding company keeps for its own account.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Technical Liabilities The sum of Net UPR and Net OCR IBNR.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
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.

SALIENT POINTS OF ACCORDED RATING

GCR affirms that a.) no part of the rating process 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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to Renasa Insurance Company Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

Renasa Insurance Company Limited participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Renasa Insurance Company Limited and other reliable third parties to accord the credit rating included:

  • The audited financial results up to 30 June 2019
  • Four years of comparative audited numbers to 30 June
  • Unaudited interim results up to 30 September 2019
  • Budgeted financial statements to 30 June 2020
  • Other related documents.
image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.