Johannesburg, 30 Sep 2016– Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Swan General Ltd 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 Ltd at BBB, with the outlook accorded as Stable. The ratings are valid until September 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Swan General Ltd (“Swan General”) based on the following key criteria:
Swan General reflects very strong capitalisation, underpinned by strong internal capital generation and well contained dividend distributions. Cognisance is taken of the asset allocation policy, which gives rise to moderately elevated market risk exposure and counterparty risk. While strong solvency metrics indicate an ability to absorb market losses, sustained depression in market prices may result in the insurer’s capital profile weakening.
Strong earnings capacity over the review period was largely a function of healthy underwriting profitability. In this respect, the insurer’s five year aggregate underwriting margin equated to 11% over the review period, albeit registering at a relatively lower 5% in FY15. Sound investment income further enhanced earnings capacity. In this respect, Swan General’s review period average operating margin remained strong at 29%. GCR views the insurer’s demonstrated track record of profitability as indicative of earnings capacity going forward. In this respect, underwriting margins are likely to remain within a sound level over the rating horizon, albeit measuring below the very high historical levels, as a result of increasing competitive pressures.
The business profile is strong, supported by the insurer’s position as the market leader in the short term domestic arena, as well as a fairly diversified earnings profile. In this respect, Swan General’s market share of short term industry gross premiums equated to a high 30% in FY15 (FY14: 28%), while four lines of business materially contributed to revenue streams. GCR expects the business profile to remain sound, underpinned by the insurer’s strong brand and well-established presence in core portfolios and market segments.
The Swan Group’s (“the group”) medium term strategy is aimed at profitable diversification (across the rest of Africa and different lines of business). This is expected to be facilitated by privately held insurance and finance related assets. While GCR recognises the strategic value of these investments, and the potential for medium term revenue diversification, a moderately high degree of industry concentration risk is implied, as well as execution and capital risk associated with start-up entities. Accordingly, the ability of management to successfully attain medium term strategic objectives, while maintaining strong credit protection metrics through the expansionary phase remains a key rating consideration.
Swan General’s reinsurance programme utilises counterparties of strong credit quality. Additionally, maximum net deductibles per risk and event are limited to conservative levels relative to capital.
Liquidity is managed from a group perspective, with sizeable cash and equivalents held by Swan Life Ltd (“Swan Life”) (FYE15: MUR9.9bn). In this respect, the insurer has an agreement in place with Swan Life, whereby the long term business would loan Swan General funds to pay large claims, if need be (with the loan repayable at an interest rate of MCB+2% per annum on a pro-rata basis). Furthermore, 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.
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 earnings capacity within strong ranges. Downward rating pressure may emanate from a weakening in the insurer’s liquidity profile and/or material deterioration in risk adjusted capital adequacy. A material loss of market share, or sustained 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 (October 2015)||Last rating (October 2015)|
|Claims paying ability: AA-(MU)||Claims paying ability: BBB|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Committee Chairperson|
|Yvonne Masiku||Susan Hawthorne|
|Senior Credit Analyst||Senior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Swan General Ltd rating report, 2015
Swan Insurance Company Limited rating reports, 2013-2014
Swan Life Ltd rating report, 2015
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 ratings were 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 Ltd 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 ratings have been disclosed to Swan General Ltd with no contestation of the ratings.
The information received from Swan General Ltd and other reliable third parties to accord the credit ratings included:
- The audited annual financial statements to 31 December 2015 Four years of comparative numbers
- Unaudited interim results to 30 June 2016
- Budgeted financial statements for 2016
- 2016 reinsurance cover notes
- Annual statutory returns to 31 December 2015
- 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.
|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.|
|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.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|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 (“ISR”)||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.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|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.|
|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”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|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|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short Term||Current; ordinarily less than one year.|
|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.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a detailed glossary of terms please click here
GCR affirms Swan General Ltd’s rating at AA-(MU); Outlook Stable.