Johannesburg, 18 Dec 2015 — 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:
Following very strong premium growth and deteriorating underwriting results for the year, Renasa’s solvency weakened as at FYE15. Nevertheless, owing to management action (including additional reinsurance and corrective underwriting protocols), interim statutory CAR cover has rebounded to 1.3x as at 1Q FY16. Furthermore, and in view of preparing for SAM parameters (expected to become effective 2017), management has indicated that advanced negotiations are underway in terms of securing additional capital. As such, management projections indicate that interim statutory CAR cover will be maintained between 1.3x and 1.5x over the rating horizon.
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, representing a rating strength.
The insurer’s underwriting results have experienced strain over the past three years, owing to sustained adverse loss experience, combined with robust growth. This saw the rolling five-year net combined ratio weaken, with overall profitability measuring at intermediate levels. In GCR’s view, the ability of the insurer to successfully improve and maintain stronger profitability metrics represents a key rating consideration over the short term.
GCR expects the insurer’s liquidity metrics to remain within a strong range over the rating horizon, supported by the continued adoption of a conservative investment strategy.
Renasa’s business model centres primarily on servicing independent intermediaries with a broad product range across both the commercial and personal markets. The robust growth achieved over recent periods has facilitated an increase in market share, albeit with the insurer’s competitive positioning remaining modest. Going forward, GCR expects the insurer’s market share to remain stable, in view of management’s more controlled growth plan.
Upward movement of the rating or outlook could develop on the back of a sustained improvement in profitability, notable strengthening in risk-adjusted capitalisation and an enhanced business profile. Negative rating actions may occur if Renasa were to fail to manage its risk-adjusted capitalisation at a level commensurate with its current rating or ongoing weak operating earnings due to a poor underwriting performance and/or a deterioration in liquidity.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2006)|
|Claims paying ability: BBB+(ZA)|
|Last rating (December 2014)|
|Claims paying ability: A-(ZA)|
|Senior Credit Analyst|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Renasa rating reports, 2006-2014
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/s has been disclosed to Renasa Insurance Company Limited with no contestation of the rating.
The information received from Renasa Insurance Company Limited and other reliable third parties to accord the credit rating included:
- Audited financial results as at 30 June 2015
- 4 years of comparative numbers
- Unaudited year to date results as at 30 September 2015
- Budgeted financial statements for 2016
- The 2016 reinsurance cover notes
- Statutory returns for financial year 2015
- Other non-public statistical information
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
|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.|
|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.|
|Combined Ratio||Measures the ability to conserve profits through the expense line.|
|Experience||A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time period.|
|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.|
|Interest||Money paid for the use of money.|
|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.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Loss||The happening of the event for which insurance pays.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Rating Outlook||A rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|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.|
|Securities||Various instruments used in the capital market to raise funds.|
|Short Term||Current; ordinarily less than one year.|
|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 Result||The profit or loss that an insurer derives from providing insurance or reinsurance coverage, exclusive of investment income and other income.|
For a detailed glossary of terms please click here
GCR affirms Renasa Insurance Company Limited’s rating of A-(ZA); Outlook Stable.