Johannesburg, 19 December 2018 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Renasa Insurance Company Limited of A-(ZA), with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Renasa Insurance Company Limited (“Renasa”) based on the following key criteria:
Renasa’s risk adjusted capitalisation is viewed to be sound, supported by an increase in the capital base. The increased capital base is viewed to cater for the quantum of insurance risk, while offsetting higher market risk. Accordingly, SCR coverage improved at FY18, and is expected to be maintained within the internal target band. As such, risk adjusted capitalisation is likely to remain within a sound range, albeit noting that the higher market risk may result in dilution in the absence of strengthened internal capital generation.
Key liquidity measures remained very strong, as evidenced by cash coverage of net technical liabilities of 6.4x at FY18 (FY17: 5.9x), and claims cash coverage of 22 months (FY17: 16 months). GCR expects the insurer’s liquidity metrics to remain within a very strong range over the rating horizon, supported by sound operating cash flow generation and conservative asset allocation.
Renasa’s reinsurance structure facilitates the insurer’s business model, offering high levels of capacity, coupled with profit support. Counterparty credit risk arising from high reinsurance cessions is mitigated by a strong reinsurance panel and conservative risk and event retention levels.
Earnings capacity is viewed to be intermediate, given the review period volatility in underwriting performance. Cognisance is, however, taken of the improvement in underwriting performance in FY18 (underwriting margin: 3%; FY17: -3%), and the on-take of new business towards the end of FY18, which could support a strengthening in earnings capacity over the rating horizon.
The insurer’s business profile is intermediate, underpinned by its modest competitive position. In this respect, Renasa’s share of total short term industry gross premiums registered at 1.1% in FY18. This is partly offset by the insurer’s fairly well spread earnings profile and relatively low product risk. Going forward, Renasa’s market share is expected to remain comparatively stable, supported by the insurer’s increasing brand recognition in the intermediated space.
Upward movement of the rating could develop on the back of a sustained improvement in profitability, notable strengthening in risk adjusted capitalisation and/or an enhanced business profile. Conversely, negative rating action may occur if Renasa were to fail to manage its risk adjusted capital adequacy at strengthened levels, or from a weakening in earnings.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2006)|
|Claims paying ability: BBB+(ZA)|
|Last rating (December 2017)|
|Claims paying ability: A-(ZA)|
|Primary Analyst||Secondary Analyst|
|Vinay Nagar||Siyuan Lu|
|Senior Credit Analyst||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018.
Renasa rating reports, 2006-2017.
RSA Short Term Insurance Bulletins, 2001-2017.
RATING LIMITATIONS AND DISCLAIMERS
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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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Renasa 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 rating has been disclosed to Renasa Insurance Company Limited.
The information received from Renasa Insurance Company Limited and other reliable third parties to accord the credit rating included:
- Audited financial results to 30 June 2018
- Four years of comparative numbers to 30 June
- Unaudited year to date results to 30 September 2018
- Budgeted financial statements to 30 June 2019
- Current reinsurance cover notes
- Statutory returns for financial year to 30 June 2018
- Other relevant documents
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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Agency||An insurance sales office which is directed by an agent, manager, independent agent, or company manager.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|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.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Cession||Amount of the insurance ceded to a reinsurer by the original insuring company (cedant) in a reinsurance transaction.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Conditions||Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Credit Rating Agency||An entity that provides credit rating services.|
|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.|
|Financial Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|Financial Year||The year used for accounting purposes by a company. It can be a calendar year or it can cover a different period. It can also be referred to as the fiscal year.|
|International Scale Rating LC||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.|
|Interest||Money paid for the use of money.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|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.|
|Short Term||Current; ordinarily less than one year.|
|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 more detailed glossary of terms please click here
GCR affirms Renasa Insurance Company Limited’s rating of A-(ZA); Outlook Stable.