Johannesburg, 5 October 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Star Assurance Company Limited of A(GH), with the outlook accorded as Positive. The rating is valid until August 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Star Assurance Company Limited (“Star”) based on the following key criteria:
Star’s rating has been placed on positive outlook, reflecting the material strengthening in capitalisation in FY14, on the back of a GHS21m capital injection. The international solvency margin improved to 129% (FY13: 88%) which, in conjunction with the assessment of asset and operational risk, is viewed to support very strong levels of risk adjusted capital adequacy. Over the short term, the international solvency margin is expected to remain at very strong levels (in excess of 100%), lending significant support to credit strength.
Similarly, the positive outlook encapsulates the improvement in liquidity to very strong levels in FY14, with cash coverage of average monthly claims and net technical provisions registering at a very strong 72 months and 2.6x respectively. The marked improvement stemmed from the disposal of investment properties during the year, coupled with the inflow of additional capital, with proceeds from both placed in fixed deposits. Management has stated its intention to retain existing asset allocations over the rating horizon, which will serve to cement the insurer’s strengthened liquidity position.
The rating is supported by Star’s position as a top tier insurer in the Ghanaian market. Furthermore, the insurer’s penetration of personal lines provides for a competitive advantage, diversifying away from the industry’s congested commercial sector, while allowing for a greater degree of pricing power.
Earnings capacity is viewed to be strong, with the insurer reporting net surpluses throughout the review period. Star continues to report a well contained net incurred loss ratio (five year average: 24%), with the trend expected to continue over the medium term. The high operating expense ratio evidenced over the review period has served to offset the favourable net incurred loss ratio somewhat. Furthermore, note is taken of the deterioration in the underwriting result in FY14, driven primarily by a GHS8.7m bad debt write off. Going forward, the risk of further bad debt write offs is expected to be mitigated by adherence to the NIC directive requiring premiums to be paid upfront prior to risk coverage.
The positive outlook reflects the potential for upward rating movement over the outlook horizon should Star evidence a return to underwriting profitability that is viewed to be sustainable, coupled with the continuation of the conservative investment strategy and corresponding high liquidity metrics, and the maintenance of very strong risk adjusted solvency. A downgrade may arise over the medium term if the insurer were to evidence a sustained deterioration in operating performance, a material reduction in the risk adjusted solvency margin, and/or a weakening in liquidity metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2009)|
|Claims paying ability: A(GH)|
|Last rating (September 2014)|
|Claims paying ability: A(GH)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Vinay Nagar|
|Sector Head: Insurance Ratings||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 July 2015
Star 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.
Star Assurance 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 Star Assurance Company Limited with no contestation of the rating.
The information received from Star Assurance Company Limited and other reliable third parties to accord the credit rating included:
- The audited financial statements to December 2014
- Four years of comparative numbers
- Unaudited year to date results to 30 June 2015
- Budgeted financial statements for 2015
- The current year reinsurance/retrocession cover notes
- Other related documents
The rating above were 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||The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets’.|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|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.|
|Retention||The net amount of risk the ceding company keeps for its own account.|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|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.|
|Statutory||Required by or having to do with law or statute.|
|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