Announcements Insurance Rating Alerts

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

Rating action

Johannesburg, 10th December 2021 – GCR Ratings (“GCR”) has affirmed Renasa Insurance Company Limited’s (“Renasa”) national scale financial strength 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

Rating rationale

The rating anchors on a sound financial profile supported by strong liquidity and moderately strong risk adjusted capitalisation, balanced by earnings strain and comparatively weaker competitive position.

The insurer’s liquidity profile has been maintained within a strong range, supported by a large asset portfolio and moderately conservative allocation stance. This is further buttressed by lower net technical obligations due to the insurer’s lower premium retention levels. Accordingly, cash and stressed financial assets covered net technical liabilities by 6.2x at FY21(FY20: 7.2x), while coverage of operational cost requirements registered at 11 months (FY20: 13 months). Liquidity metrics are expected to remain within a strong range over the rating horizon.

Renasa’s capital base grew 2% to R251m at FY21 on the back of a capital injection of R15m, cushioning the insurer’s capital from the net loss registered in FY21. As such, the insurer continued to maintain aggregate risk exposures within acceptable ranges. This notwithstanding, the regulatory Solvency Capital Requirement (“SCR”) coverage equated to a lower 1.0x (FY20: 1.2x), in line with the prescribed minimal capital requirement coverage. Looking ahead, the insurer is expected to maintain the SCR coverage ratio around 1.1x supported by continued capital injections with the shareholders making further capital injections amounting to R42m at 4MFY22.

Earnings weakened in FY21 on the back of an unfavourable claims experience, with the gross loss ratio equating to 69% (FY20: 63%), while the operating expense ratio was maintained at 15%. Accordingly, the insurer’s gross underwriting margin closed at 1% (FY20: 7%: five-year average: -1%), versus a net underwriting margin of -17% (FY20: -2%). Net profitability was negatively impacted by the net underwriting loss of R44.7m that was partially offset by investment income amounting to R14m (FY20: R15m) with the year closing with an after- tax loss of R21.8m (FY20: R6.7m profit profit).

The rating takes into account the insurer’s comparatively weaker business profile. Renasa reflects an intermediate market position, with weighted market and relative market shares of c.1.5% and 1.2x in FY21 (FY20: 1.4% and 1.1x), respectively. The business mix remains somewhat diversified with two lines of business contributing materially to revenue with a concentration to the motor book that is offset by policyholder granularity given exposure to individual lines.

Outlook statement

The Stable outlook captures prospects of maintenance of the credit profile within the same range, with the insurer’s liquidity likely to remain within a strong range. The statutory capital coverage ratio is likely to be maintained around 1.1x supported by anticipated continued support by the shareholders through capital injections cushioning the balance sheet from potential sustained earnings strain. The business profile is expected to remain unchanged.

Rating triggers

An upward rating movement may follow a material improvement in earnings and SCR cover rising above 1.25x, while liquidity is maintained within a strong range. Downward rating movement may follow further earnings pressure, reducing risk adjusted capitalisation and/or liquidity.

Analytical contacts

Primary analyst Linda Matavire Analyst: Insurance Ratings
Johannesburg, ZA LindaM@GCRratings.com +27 11 784 1771
Committee chair Vinay Nagar Senior Analyst: Financial Institutions
Johannesburg, ZA Vinay@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, October 2021
GCR Insurance Sector Risk Scores, September 2021

Ratings history

Renasa Insurance Company Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Claims paying ability Initial National BBB+(ZA) Stable Outlook September 2006
Financial strength Last National A-(ZA) Stable Outlook August 2020

Risk score summary

Rating components and factors Risk score
Operating environment 15.00
Country risk score 7.00
Sector risk score 8.00
Business profile (3.00)
Competitive position (2.00)
Premium diversification (1.00)
Management and governance 0.00
Financial profile 0.25
Earnings (1.00)
Capitalisation 0.00
Liquidity 1.25
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total score 12.25

Glossary

Premium The price of insurance protection for a specified risk for a specified period of time.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
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.
Securities Various instruments used in the capital market to raise funds.
Security One of various instruments used in the capital market to raise funds.
Senior A security that has a higher repayment priority than junior securities.
Short Term Current; ordinarily less than one year.
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 RATINGS

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 is based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating is an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to the rated entity. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity 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 the entity and other reliable third parties to accord the credit rating included:

  • Draft audited financial results as at 30 June 2021;
  • Four years of comparative audited financial statements to 30 June
  • Full year budgeted financial statements for 2022;
  • Unaudited interim results to 31 October 2021;
  • Reinsurance cover for 2022; and
  • Other relevant documents.


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