Johannesburg, 01 Sep 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Saham Assurances Angola Seguros, S.A., formerly GA Angola Seguros, S.A., at A+(AO), with the rating placed on ‘Rating Watch’. The rating is valid until February 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Saham Assurances Angola Seguros, S.A. (“Saham Angola”) based on the following key criteria:
Saham Angola’s risk adjusted capitalisation, which historically measured at strong levels, lowered to an intermediate level at FYE15. The insurer’s risk adjusted capital adequacy has remained at the intermediate level at 1H F16. This was largely due to an increased quantum of credit risk exposure (stemming from a rise in related-party receivables), coupled with a reduction in the capital base. Management expects to raise AOA2.5bn by FYE16 from Saham Finances, S.A. Accordingly, the rating has been placed on ‘Rating Watch’, pending the injection. In the absence of capital materialising, solvency would persist at the intermediate level. As such, the ability of the insurer to restore risk adjusted capital adequacy within a strong range represents a key rating consideration.
The insurer recently rebranded in order to align with the Saham Group (“the group”). In this respect, Saham Angola expects to improve its business profile by way of increased business volumes and enhanced earnings diversification, given the group’s strong continental brand, extensive service levels, and retail-based products that represents a core offering across the group.
Saham Angola’s business profile is viewed to be moderately strong, underpinned by a strong competitive position, and moderate earnings diversification. In this respect, the insurer is one of the largest players in the domestic market, with an estimated market share ranging between 15% and 20% of total industry gross premiums over the review period. However, the business mix is characterised by the presence of high-value multi-national risks, which result in a certain degree of volatility in Saham Angola’s premium composition. In terms of the latter, the sizeable premium contribution from the largest policyholder represents a medium term risk to revenue, which is partially offset by the favourable profitability of select portions of business within this portfolio. Furthermore, the insurer expects to reduce dependence by diversifying the portfolio, in line with strategic objectives.
Strong earnings capacity is largely a function of healthy underwriting profitability. In this respect, the insurer’s five year aggregate underwriting margin equates to 11% over the review period. Profitability has been supported by strong technical expertise and favourable profiles of risks on which the insurer participates. GCR views the track record of underwriting profitability, coupled with expectations of enhanced scale efficiencies, to be indicative of earnings capacity over the rating horizon.
GCR expects liquidity metrics to remain within a strong range over the rating horizon, supported by conservative asset allocation. Cash covered net technical liabilities by a strong 3x at FYE15 (FYE14: 3.2x), while claims cash coverage equated to 84 months (FYE14: 79 months). Cognisance is taken of the currency risk stemming from USD denominated exposures, in light of relatively limited foreign currency holdings and current operating environment challenges.
Reserving has been measured at high levels over the review period and is expected to be sustained over the rating horizon. Reserving is supported by a fairly sophisticated framework, derived from a fully integrated underwriting system and external technical support. The reinsurance programme is largely placed with the group, while maximum net deductibles per risk are limited to relatively conservative levels.
The ‘Rating Watch’ reflects the pending large capital injection, with negative rating action potentially resulting from risk adjusted capital adequacy remaining at the intermediate level. Furthermore, liquidity and/or material weakening in earnings capacity could result in negative rating action. Conversely, the rating may be upgraded if the insurer’s risk adjusted capitalisation strengthens to very strong levels, while liquidity and earnings capacity are sustained within strong ranges.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (August 2007)|
|Claims paying ability: BBB+(AO)|
|Last rating (June 2015)|
|Claims paying ability: A+(AO)|
|Primary Analyst||Committee Chairperson|
|Yvonne Masiku||Marc Chadwick|
|Senior Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
GA Angola Seguros, S.A rating reports, 2007-2015
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.
Saham Assurances Angola Seguros, S.A. 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 Saham Assurances Angola Seguros, S.A. with no contestation of the rating.
The information received from Saham Assurances Angola Seguros, S.A. and other reliable third parties to accord the credit rating included:
- The audited annual financial statements to 31 December 2015 Four years of comparative numbers
- Unaudited interim results to 30 June 2016
- Budgeted financial statements for 2016
- Other related documents.
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.
|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.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|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.|
|International Scale Rating (“ISR”)||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.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|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 (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|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.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a detailed glossary of terms please click here
GCR affirms Saham Assurances Angola Seguros, S.A’s rating at A+(AO); Rating Watch.