Johannesburg, 3 November 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Seguradora Internacional de Mocambique, S.A. of AA-(MZ), with the rating outlook accorded as Stable. The rating is valid until September 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Seguradora Internacional de Mocambique, S.A. (“SIM”) based on the following key criteria:
SIM has attained a consistent track record of very strong earnings, supported by well contained claims and operational costs. To this end, the operating margin averaged 42% over the review period, strengthening to a review period high of 46% in FY15. The latter was achieved despite a challenging economic environment, indicating earnings resilience. Earnings capacity is expected to be maintained at a strong level over the review period.
Supported by excellent earnings generation, capitalisation remained strong, with the international solvency margin registering at a high 141% at FYE15 (FYE14: 135%). Consistent capital build, and limited underwriting and market risk exposure, served to sustain strong risk adjusted capitalisation, with the trend likely to continue over the rating horizon.
SIM continues to maintain a strong competitive position in both the life and short term insurance markets, representing a key input to the insurer’s rating. Although subdued growth over the past two years has seen the insurer’s market share moderate somewhat, SIM is viewed to be well positioned to defend its existing market status, on the back of strong group relationships and brand strength.
Liquidity is viewed to be strong, supported by a conservative investment strategy. In this regard, asset allocations have consistently favoured cash investments (at 69% of total investments at FYE15), contributing to very high cash coverage of average monthly claims of 90 months at FYE15 (FYE14: 73 months), while cash coverage of technical reserves have been maintained around 1x over the past three years. Liquidity strength is expected to persist over the medium term, given continued cash generation and a consistent investment strategy.
Treaty and facultative reinsurance is primarily placed with well rated counterparties, while risk and event net retention levels are considered to be prudent.
The rating currently matches the national scale ceiling applicable to entities operating in Mozambique. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. A sustained weakening in operating profitability, a pronounced deterioration in key credit protection metrics, or a protracted deterioration in the local operating environment, could result in a downward rating adjustment. Further to this, a reduction in the credit strength of the banking counterparty would also result in negative rating pressure.
| NATIONAL SCALE RATINGS HISTORY |
| Initial rating (February 2015) |
| Claims paying ability: AA-(MZ) |
| Outlook: Stable |
| Last rating (October 2015) |
| Claims paying ability: AA-(MZ) |
| Outlook: Stable |
ANALYTICAL CONTACTS
| Primary Analyst |
| Vinay Nagar |
| Credit Analyst |
| (011) 784-1771 |
| vinay@globalratings.net |
| Committee Chairperson |
| Marc Chadwick |
| Sector Head: Insurance Ratings |
| (011) 784-1771 |
| chadwick@globalratings.net |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Criteria for Rating Long Term Insurance Companies, updated July 2016
SIM rating reports, 2015
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Seguradora Internacional de Mocambique, 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 Seguradora Internacional de Mocambique, S.A. with no contestation of the rating.
The information received from Seguradora Internacional de Mocambique, S.A. and other reliable third parties to accord the credit rating included:
- Audited financial results to 31 December 2015
- Four years of comparative numbers
- Unaudited interim results to 30 September 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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
| 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. |
| 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. |
| Coverage | The scope of the protection provided under a contract of insurance. |
| 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. |
| Facultative | Facultative reinsurance means reinsurance of individual risks by offer and acceptance wherein the reinsurer retains the “faculty” to accept or reject each risk offered. |
| Industry Risk | The risk that defaults will arise in an industry because of factors specifically affecting that industry. |
| 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. |
| International Solvency Margin | Measures the ability to cover current year’s written premiums using shareholder’s funds. |
| 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. |
| Net Retention | The amount of insurance that a ceding company keeps for its own account and does not reinsure. |
| Operating Margin | Measures the efficiency of profit generation from investments and underwriting. |
| Operating Profit | Profits from a company’s ordinary revenue-producing activities, calculated before taxes and interest costs. |
| 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. |
| Reserve | (1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due. |
| 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. |
| 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. |
| 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 detailed glossary of terms, please click here
GCR affirms Seguradora Internacional de Mocambique, S.A.’s rating of AA-(MZ); Outlook Stable
