Announcements

GCR affirms SIC Insurance Company Limited’s rating of A-(GH); Rating watch.

Johannesburg, 24 October 2017 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to SIC Insurance Company Limited of A-(GH), with the rating maintained on Rating watch. The rating is valid until March 2018.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to SIC Insurance Company Limited (“SIC”) based on the following key criteria:

The rating of SIC has been maintained on A-(GH), reflecting continued rating support derived from the insurer’s high market share and strong liquidity. However, capitalisation, having historically represented a material rating strength, lowered in FY16, and is expected to reduce further in FY17. This weakening trend is a function of limitations in retained earnings, coupled with growth in underwriting risk volumes. As a result, this moderation in capital strength is expected to place negative ratings pressure on the insurer’s credit profile over the rating horizon. Furthermore, the Rating watch reflects the sustained risk of the pending litigation and possible settlement of a material credit guarantee claim, along with other recurring credit guarantee claims and lawsuits, representing significant earnings risk.

SIC’s rating is negatively impacted by weak earnings, given consistent underwriting deficits registered over the review period. The sustained weak underwriting performance is in sharp contrast to the anticipated turnaround from FY15 onwards, being a function of large and recurring credit guarantee claims (increasing claims volatility) and an elevated operating cost structure. Consequently, the insurer recorded a strained review period average underwriting margin of -25% (FY16: -32%). In GCR’s view, underwriting profit weakness is expected to continue going forward, underpinned by a potentially volatile claims experience, along with limited scope for scale efficiencies over the rating horizon.

SIC still maintains a leading position in the Ghanaian short term insurance industry, despite persistently shedding market share since FY05. In this respect, the insurer’s market share was estimated at 15% at FY16 (FY15: 17%; FY12: 23%), with market shares of the two closest competitors estimated at 13% and 12% at FY16 (FY15: 12% and 9%), respectively. Management plans to address the loss of market share through various initiatives. In GCR’s view, however, the insurer’s market position could continue to be impacted by increasing competitive dynamics and the perceived loss of the insurer’s brand identity.

The insurer’s risk adjusted capitalisation is viewed to be strong, albeit exposed to increasing insurance and counterparty risk (associated with strategic and other high risk investments). Consequently, the international solvency margin registered at a lower 86% at FY16 (FY15: 119%) while the statutory solvency measured at a lower 132% (FY15: 162%), which was below the minimum regulatory requirement of 150%. In GCR’s view, there is high potential for a further moderation in risk adjusted capitalisation, given the anticipated increase in the volume of the risk base. Furthermore, the insurer’s internal capital generating capacity is expected to remain limited, underpinned by poor underwriting performance and more recently, a significant dividend extraction (of GHS4.2m).

SIC’s liquidity remained within a very strong range, supported by a material reduction in technical provisions and the moderation in claims experience FY16. As such, the claims cash cover and cash coverage of net technical liabilities equated to a higher 24 months and 1.6x at FY16 (FY15: 13 months and 1.2x), respectively. Liquidity is likely to remain within a very strong range over the medium term, although evidencing sensitivity to weakened operational cash flow generation and reserving fluctuations.

The rating has been placed on Rating watch pending the outcome of disputes relating to the aforementioned large guarantee claim. Other factors that could lead to negative action include either a further deterioration in operating profitability and sustained weakening in capital adequacy and/or liquidity to levels that are not deemed to be rating appropriate. Conversely, an upward movement of the rating or outlook is unlikely in the absence of a sustained turnaround in operating profitability.

NATIONAL SCALE RATINGS HISTORY
 
Initial rating (September 2009)
Claims paying ability: AA(GH)
Outlook: Negative
 
Last rating (March 2017)
Claims paying ability: A-(GH)
Rating watch: Yes

ANALYTICAL CONTACTS

Primary Analyst Secondary analyst

Marc Chadwick Tichaona Nyakudya
Sector Head: Insurance Ratings Credit Analyst
(011) 784 – 1771 (011) 784 – 1771
chadwick@globalratings.net tichaonan@globalratings.net
   
Committee Chairperson

 
Yvonne Mujuru  
Sector Head: Insurance Ratings  
(011) 784 – 1771  
ymujuru@globalratings.net  

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2017

SIC rating reports, 2009-2016

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.

SIC Insurance Company Limited 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 SIC Insurance Company Limited with no contestation of the rating.

The information received from SIC Insurance Company Limited and other reliable third parties to accord the credit rating included:

  • Audited financial results to 31 December 2016
  • Four years of comparative numbers
  • Unaudited interim results to 30 June 2017
  • Budgeted financial statements for 2017
  • 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

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 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.
Deductible The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.
Diversification Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
Execution Risk The risk that a company’s business plans will not be successful when they are put into action.
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 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.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
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.
Operating Margin Measures the efficiency of profit generation from investments and underwriting.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.
Policyholder The person in actual possession of an insurance policy.
Premium The price of insurance protection for a specified risk for a specified period of time.
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 An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Yield Percentage return on an investment or security, usually calculated at an annual rate.

For a detailed glossary of terms, please click here

GCR affirms SIC Insurance Company Limited’s rating of A-(GH); Rating watch.

image_pdfPDF View

Leave a Reply



ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.