Johannesburg, 07 Oct 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Société Nationale d’Assurances et de Réassurances of A(BF), with the outlook accorded as Stable. The rating is valid until October 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Société Nationale d’Assurances et de Réassurances (“Sonar”) based on the following key criteria:
The insurer is the largest player in the Burkina Faso short term insurance arena, with an average market share of 32% over the review period. The market position is underpinned by well entrenched client-facing relationships and strong franchise value. Management expects to defend its top tier market position over the rating horizon, despite increasing competitive dynamics.
Sonar reflects sufficient risk adjusted capitalisation, supported by a relatively well contained quantum of insurance risk. Despite sound net profitability, the insurer’s capital growth remained subdued, given high average dividend pay-outs. Management expects to develop a formalised dividend policy, aiming at gradually building capital reserves. As such, GCR expects capital adequacy to remain at rating adequate levels over the medium term.
Liquidity metrics continued to improve over the review period, with cash covering net technical liabilities by a higher 0.9x at FYE14 (FYE13: 0.6x) from a review period low of 0.5x at FYE10. The claims cash coverage ratio remained strong, with a five year average equating to 34 months. Note is taken of Sonar’s sizeable investment portfolio, representing 2.9x the net earned premium base, and 1.6x net technical provisions. This allows for strong investment income, while also providing a source of redeemable instruments to supplement liquidity. As such, GCR expects liquidity metrics to remain within a moderately strong range over the rating horizon.
The insurer’s asset quality has been measured at an intermediate level, owing to the relatively elevated proportion of high risk financial assets, offsetting improvements in aged premium debtors (following the implementation of the new premium credit regulations effective from 4Q F11). The former continues to represent a risk to capital. This is largely a function of the investment restrictions imposed by the Conférence Interafricaine des Marchés d’Assurances (“CIMA”) code, which limits the investment asset classes and diversification available in the region.
Sonar’s net underwriting profitability has been measured at weak levels, given the losses recorded over the bulk of the review period. This is largely due to the insurer’s inability to translate its notable scale advantage into material efficiency gains. However, strong investment income has supported net profitability. GCR expects the insurer’s underwriting trend to remain under pressure over the rating horizon, given the high cost base effects expected.
The reinsurance programme structure introduces a moderate degree of counterparty concentration and credit risk. Cognisance is, however, taken of the moderate credit quality of the underlying reinsurers in the Globus Re reinsurance programme and the fact that the former retains no risk for its own account.
Upward movement of the rating could develop if the insurer demonstrates a sustainable turnaround in underwriting profitability. Furthermore, a strengthening in risk adjusted capitalisation, and an improvement in asset quality, could lead to positive rating movement. Conversely, the rating may be downgraded if the insurer were to evidence a material reduction in risk adjusted capital adequacy, and/or a weakening in liquidity metrics. Furthermore, a sustained weakening in business profile (by way of market share and earnings) may result in negative ratings pressure.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (October 2009)|
|Claims paying ability: A(BF)|
|Last rating (October 2014)|
|Claims paying ability: A(BF)|
|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 2015
Sonar rating reports, 2009-2014
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.
Société Nationale d’Assurances et de Réassurances (SONAR-IARD) 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 Société Nationale d’Assurances et de Réassurances (SONAR-IARD) with no contestation of the rating.
The information received from Société Nationale d’Assurances et de Réassurances (SONAR-IARD) and other reliable third parties to accord the credit rating included
- Audited financial results to 31 December 2014
- Four years of comparative audited numbers
- Unaudited interim results of to 30 June 2015
- Budgeted financial statements for 2015
- The current year reinsurance cover notes
- Statutory returns to 31 December 2014
- Industry comparative data, and
- 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.
|Accounting||A process of recording, summarising, and allocating all items of income and expense of the company and analysing, verifying and reporting the results.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|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.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|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.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Creditworthiness||An assessment of a debtor’s ability to meet debt obligations.|
|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.|
|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.|
|Interest||Money paid for the use of money.|
|Liquidity||The speed at which assets can be converted to cash.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|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”)||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|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.|
|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|
|Rating Outlook||A rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|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.|
|Securities||Various instruments used in the capital market to raise funds.|
|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 more detailed glossary of terms/acronyms used as per GCR insurance glossary, please click here