Announcements

GCR affirms SIC Insurance Company Limited’s rating of A+(GH); Outlook Stable.

Johannesburg, 31 Oct 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to SIC Insurance Company Limited of A+(GH); with the outlook accorded as Stable. The rating(s) are valid until August 2015.

SUMMARY RATING RATIONALE

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

Competitive positioning continues to be measured at very strong levels, and represents a core component of the insurer’s rating. SIC remains the largest insurer in the domestic short term insurance sector, underpinned by an extensive branch network, and established corporate relationships. We expect the insurer to retain a top tier share over the medium term, although strong market share gains by open market competitors will likely steadily erode this.

Capitalisation remains strong, and supportive of the rating, although noticeably weakened relative to the historical excess position held. The latter is primarily a function of GHS19.7m in bad debts written off in F12, continuing write-offs in F13 and F14, and subdued subsequent capital rebuilding through earnings. In conjunction with high growth targets, this sees the budgeted international solvency margin equate to 68% in F14.

Profitability has weakened to represent a rating weakness, impacted negatively by high debtor write-offs, coupled with a high cost structure. Positively, SIC has recorded very high, and fairly stable, levels of technical profitability over the review period. GCR views this as indicative of the quality of the insurance business within the portfolio, and the efficient acquisition cost structures in place. The effective leveraging of market strength, coupled with progression towards operational and cost efficiencies, is a key medium term target embedded within the rating.

Liquidity has been measured at intermediate levels, having improved relative to historical aggregates. The insurer’s increasing focus on liquid assets within the investment portfolio may bode well for asset quality going forward, should the existing trend persist. Risk assets continue to dominate the portfolio, nevertheless, and are likely to do so for the 24 months outlook.

Capital management centres on sustaining solvency above statutorily required minimum levels. In light of the high growth targets of the company, coupled with curtailed earnings capacity in terms of historical capital building, GCR views this approach as limited relative to potential future capital pressures.

SIC evidences a fairly well spread book of business across lines of business, with high weightings of motor and property (currently reflecting healthy technical margins) retaining product risk at moderately low levels. The insurer’s financial profile is further supported by the high credit quality of reinsurance counterparties.

Upward movement on the rating or outlook could develop with a stable and profitable underwriting track record, with management needing to demonstrate an ability to unlock the technical profitability within the portfolio over the medium term. Strengthened liquidity metrics may also strengthen the rating, and these must be accompanied by strong risk adjusted solvency levels. A downgrade may arise if a continued deterioration in the operating performance were to be evidenced despite existing remedial measures, and/or should a sustained weakening in risk-adjusted capitalisation and liquidity metrics be reported.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY

Initial rating (September 2009)
Claims paying ability: AA(GH)
Outlook: Negative

Last rating (July 2013)
Claims paying ability: A+(GH)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

Committee Chairperson
Benjamin Schmidt
Senior Analyst: Insurance
(011) 784-1771
Schmidt@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Insurance Companies, Updated July 2014.
SIC rating reports, 2009 – 2013.

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; 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/s 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(s) included the 2013 audited annual financial statements (plus four years of comparative numbers), latest Internal and/or external report to management, full year 2014 budgeted financial statements, year to date management accounts to June 2014, the 2014 reinsurance summary programme, and other documentation related to the rating exercise.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

GCR affirms SIC Insurance Company Limited’s rating of A+(GH); Outlook Stable.

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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.

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