Announcements

GCR affirms Swan General Ltd’s rating of AA-(MU); Outlook Stable.

Johannesburg, 23 November 2017 – Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Swan General Ltd of 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 2018.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Swan General Ltd (“Swan General”) based on the following key criteria:

Swan General’s rating reflects the insurer’s very strong capitalisation and competitive position, which have both been recorded at very high levels historically, and are projected to be sustained at elevated levels going forward. While earnings capacity, a historical rating strength, has come under pressure over the past two years, the insurer has projected an improved profit trajectory for FY17. Furthermore, adjusted liquidity metrics (which incorporate certain tradeable securities) are expected to remain at moderately strong levels over the short term. Nevertheless, the potential for sustained weakened earnings capacity may impact negatively on the entity’s credit profile going forward.

The insurer reflects very strong risk adjusted capitalisation, supported by a sizeable capital base catering for insurance risk and elevated market risk exposure. GCR expects capitalisation to remain very strong 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.

Swan General is a market leader in the short term domestic arena, underpinned by the insurer’s strong brand and well-established presence in core portfolios and market segments. In this regard, the insurer’s share of short term insurance industry premiums equated to 30% in FY16 (FY15: 28%). GCR expects the insurer to continue to defend its competitive position, despite increasingly competitive dynamics.

The insurer’s earnings capacity has come under pressure over the past two years, underpinned by underwriting margin compression. As such, the two year underwriting margin equated to 2% (FY16: 0%; FY15: 5%), compared to the prior two year margin of 12%. Healthy investment income has served to partially offset this earnings pressure. Management envisages an improved underwriting margin in FY17, supporting higher overall net profitability. As such, GCR views the development of earnings capacity over the rating horizon as a key rating determinant, noting the potential for sustained earnings weakness to negatively impact the insurer’s credit rating.

Liquidity is viewed to be moderately strong, with a significant proportion of tradeable listed equities providing material liquidity relief, while additional group facilities augment cash flow requirements. Listed equities are highly diversified, with 55% thereof (FY16: MUR625m) held in offshore securities (which can be liquidated within 72 hours). Adjusted cash coverage of net technical provisions, inclusive of offshore assets, equates to a moderately strong 0.9x (FY15: 1.0x), while the claims cash cover ratio registers at 12 months (FY15: 18 months). Liquidity is also managed from a group perspective, with sizeable cash and equivalents (FY16: MUR11bn) held by the insurer’s subsidiary, Swan Life Ltd (“Swan Life”). As an ongoing cash management tool, Swan General is able to obtain a loan from Swan Life to augment short term liquidity requirements. GCR expects liquidity to remain at moderately strong levels over the short term, supported by the large quantum of financial assets, operational cash flow generation, and ongoing group 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 strengthen, while maintaining risk adjusted capitalisation and earnings capacity within strong ranges. However, failure to sustain moderately strong adjusted liquidity levels may result in possible negative rating pressure. Downward rating pressure may emanate from a further weakening in liquidity profile and/or sustained deterioration in earnings capacity.

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 2016)   Last rating (September 2016)
Claims paying ability: AA-(MU)   Claims paying ability: BBB
Outlook: Stable   Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst     Secondary Analyst
Marc Chadwick     Nyasha Chikwengo
Sector Head: Insurance Ratings     Credit Analyst
(011) 784-1771     (011) 784-1771
chadwick@globalratings.net     nyashac@globalratings.net

Committee Chairperson

     
Yvonne Mujuru      
Sector Head: Insurance Ratings      
(011) 784-1771      
ymujuru@globalratings.net      

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2017

Swan Insurance Company Ltd rating reports, 2013-2014
Swan General rating reports, 2015-2016

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 rating.

The information received from Swan General Ltd and other reliable third parties to accord the credit ratings included:

  • The audited financial results as at 31 December 2016
  • Unaudited interim results to 30 September 2017
  • Budgeted financial statements for 2017
  • The current year reinsurance cover notes
  • Annual statutory returns to 31 December 2016
  • Other relevant company specific information

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

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.
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 more detailed glossary of terms please click here

GCR affirms Swan General Ltd’s rating of AA-(MU); Outlook Stable.

image_pdfPDF View

Leave a Reply



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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.