Johannesburg, 4 November 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Swan General Limited, formerly Swan Insurance Company Limited, at AA-(MU), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Swan General Limited at BBB; with the outlook accorded as Stable. The ratings are valid until September 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Swan General Limited (“Swan General”) based on the following key criteria:
Swan General reflects very strong levels of capitalisation, underpinned by a sizeable capital base catering for the quantum of insurance and market risk exposures. GCR expects capitalisation to remain within a strong range over the rating horizon, supporting the insurer’s medium term growth strategy. This view is premised on the insurer continuing to register strong internal capital generation, while maintaining a relatively stable risk exposure mix, and well contained dividend distributions.
The insurer’s business profile is strong, supported by the insurer’s position as the leading player in the short term domestic market, as well as sound levels of earnings diversification. In this regard, Swan General recorded an average market share of 25% over the review period, while four lines of business materially contributed to revenue streams. GCR expects the business profile to remain at strong levels, underpinned by the insurer’s strong brand, well-established presence in core portfolios and market segments, as well as plans to enhance earnings diversification (both geographically and by type of business).
Swan General’s earnings capacity remained strong over the review period, largely as a function of well contained claims experiences, and high cost efficiencies. Management expects underwriting margins to remain sound over the medium term, albeit measuring below the very high historical levels, as a result of increasing competitive pressures. GCR views the insurer’s demonstrated track record of profitability as indicative of earnings capacity going forward.
Liquidity metrics remained at relatively constrained levels, albeit reflecting an adequate profile compared to regional norms and operational requirements. In this regard, cash covered net technical liabilities by 0.4x at FYE14 (FYE13: 0.6x), while the claims cash cover ratio equated to 8 months (FY13: 9 months). The sizeable investment portfolio, consisting largely of tradable securities, coupled with the investment mandate, allows for cash draw down from the portfolio, offering material liquidity support.
GCR views the asset allocation policy to be fairly aggressive, giving rise to a high level of market risk exposure and counterparty risk. While strong solvency metrics indicate an ability to absorb market losses, sustained depression in market prices could result in the insurer’s capital profile weakening. Strategic investments also imply a high degree of industry concentration risk, as well as execution and capital risk associated with start-up entities. Accordingly, the ability of management to successfully achieve strategic objectives represents a key rating consideration through the expansionary cycle.
Swan General’s reinsurance programme utilises counterparties of sound credit quality. Additionally, maximum net deductibles per risk and event are limited to levels that are viewed as conservative.
The international scale rating incorporates the impact of Mauritius’ sovereign rating of BBB+.
The ratings may be upgraded if the insurer’s liquidity metrics strengthened substantially, while maintaining risk adjusted capitalisation and profitability within strong ranges. Downward rating pressure may emanate from a weakening in liquidity metrics relative to existing levels. A material loss of market share, or deterioration in earnings capacity, may also give rise to negative ratings pressure.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (November 2013)||Initial rating (November 2013)|
|Claims paying ability: AA-(MU)||Claims paying ability: BBB|
|Outlook: Stable||Outlook: Stable|
|Last rating (September 2014)||Last rating (September 2014)|
|Claims paying ability: AA-(MU)||Claims paying ability: BBB|
|Outlook: Stable||Outlook: Stable|
|Primary analyst||Secondary Analyst|
|Yvonne Masiku||Kudzai Siwawa|
|Senior Credit Analyst||Junior Credit Analyst|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Swan Insurance Company Limited rating reports, 2013-2014
The Anglo Mauritius Assurance Society Limited rating reports, 2013-2014
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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Swan General 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 Swan General Limited with no contestation of the rating.
The information received from Swan General Limited and other reliable third parties to accord the credit rating included:
- The audited annual financial statements to December 2014
- 4 years of comparative audited numbers
- Unaudited year to date results to 30 June 2015
- Budgeted financial statements to December 2015
- 2015 reinsurance cover notes
- Other related documents.
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.
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 detailed glossary of terms please click here
GCR affirms Swan General Limited’s rating of AA-(MU); Outlook Stable.