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 |
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.