Johannesburg, 19 October 2018– 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 outlook accorded as Stable. The rating is valid until September 2019.
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 factors:
SIM’s rating was affirmed at AA-(MZ) based on the insurer’s very strong risk adjusted capitalisation and liquidity, coupled with its strong business profile and sound earnings. The stable outlook reflects GCR’s expectations of relative stability in the credit profile, despite a potential reduction in market share stemming from a corporate transaction (pension fund business was extracted from the insurer’s licence in June 2018) and a challenging operating environment.
SIM’s risk adjusted capitalisation remained at a very strong level, with the international solvency margin equating to 279% at FY17 (FY16: 256%). Strong capitalisation has been underpinned by the insurer’s sizeable capital base catering for the quantum of insurance and market risk exposures. GCR expects risk adjusted capitalisation to remain within a very strong range over the rating horizon, underpinned by sound internal capital generation, coupled with well contained dividend distributions.
Earnings capacity is robust, supported by consistently healthy underwriting profitability and sound investment returns. In this respect, the insurer’s five year aggregated underwriting margin equated to 29% (FY17: 23%; FY16: 30%), with the operating margin averaging 46% over the review period. Strong profitability metrics have largely been a function of a very competitive cost structure, coupled with a contained claims ratio, which are expected to sustain earnings strength over the medium term.
Liquidity is viewed to be strong, and is expected to be sustained at a similar level going forward, factoring in the corporate transaction in June 2018, which resulted in the transfer of approximately MZN3.1bn in assets off SIM’s balance sheet. In this respect, after adjusting cash and equivalents and net technical provisions to exclude the pension fund business, adjusted liquidity metrics remained at strong levels, with cash coverage of net technical provisions and average monthly claims equating to 1.5x and 55 months respectively (FY17 unadjusted: 1.2x and 67 months respectively). GCR expects liquidity metrics to remain within a strong range over the medium term, underpinned by consistency within the remaining investment base. Cognisance is taken of the high concentration of the insurer’s cash and short-term deposits to a related party which serves to heighten banking counterparty exposure. As such, liquidity will continue to exhibit sensitivity to any potential weakening in the credit strength of the bank.
SIM maintained its top tier position in the local short term and life insurance market. In this regard, the insurer’s share of total insurance industry premiums equated to 14% in FY17 (FY16: 17%). The business mix is viewed to be well diversified, with four lines of business each contributing in excess of 10% to gross written premiums. While the risk base is heavily geared towards motor business (FY17: 44%; FY16: 41%), this is partially offset by the low product risk associated with this line. Going forward, market share is expected to reduce on the back of the envisaged contraction in life premiums and the shift in competitive dynamics due to the challenging operating environment. This may result in a moderation in the business profile, and the insurer’s ability to defend its top tier market position over the rating horizon will form a key rating consideration.
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. Conversely, downward rating action may follow moderation in the insurer’s business profile and a sustained deterioration in earnings capacity, or a weakening in capitalisation and liquidity below expectations.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (February 2015)|
|Claims paying ability: AA-(MZ)|
|Last rating (November 2017)|
|Claims paying ability: AA-(MZ)|
|Vinay Nagar||Linda Matavire|
|Senior Credit Analyst||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
Criteria for Rating Long Term Insurance Companies, updated May 2018
SIM rating reports, 2015-2017
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 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.
The information received from Seguradora Internacional de Mocambique, S.A and other reliable third parties to accord the credit rating includes:
- Audited financial results as per 31 December 2017
- Unaudited interim results to September 2018
- Four years of comparative audited numbers
- Budgeted financial statements for 2018
- The current year reinsurance cover notes
- Other related documents
The rating above was solicited by, or on behalf of, the rated entity, 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
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Balance Sheet||Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|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 Base||The issued capital of a company, plus reserves and retained profits.|
|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.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|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.|
|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.|
|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.|
|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.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a detailed glossary of terms please click here
GCR affirms Seguradora Internacional de Mocambique, S.A’s rating of AA-(MZ); Outlook Stable.