Announcements

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

Johannesburg, 12 October 2018 – 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 of BBB, with the outlook accorded as Stable. The ratings are valid until September 2019.

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:

The insurer reflects very strong risk adjusted capitalisation, supported by a sizeable capital base catering for the quantum of insurance risks and elevated market exposure. GCR expects capitalisation to remain very strong over the rating horizon, premised on the insurer continuing to register strong internal capital generation, while maintaining a relatively stable risk exposure mix and well contained dividend distributions. Furthermore, the reinsurance programme utilises counterparties of strong credit quality. Additionally, maximum net deductibles per risk and event are limited to conservative levels relative to capital.

Competitive positioning is viewed to be a key rating strength with Swan General being the market leader in the local short term insurance industry, accounting for 30% of total industry GWP at FY17. Looking ahead, the insurer’s entrenched market position and strong brand value is expected to provide sufficient growth impetus to defend its market leading position.

Earnings capacity has moderated to an intermediate range. In this regard, underwriting margins have been rather subdued over the past three years (compared to the start of the review period), averaging 2.4% (FY17: 2.3%), with an elevated claims ratio eroding margin availability (two year average: 69% vs prior three year average: 56%). Nevertheless, large and consistent investment returns have supported healthy net profit after tax amidst soft market conditions, cumulatively amounting to MUR1.2bn over the review period. Looking ahead, GCR views the development of earnings capacity over the rating horizon as a key rating determinant, noting the potential for sustained earnings pressure to negatively impact the insurer’s credit profile.

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 (FY17: MUR709m) held in offshore securities (which can be liquidated within 72 hours). Adjusted cash coverage of net technical provisions, inclusive of offshore assets, equated to a moderately strong 1.1x (FY16: 0.9x), while the claims cash cover ratio registered at 14 months at FY17 (FY16: 12 months). Furthermore, 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 and earnings capacity strengthen while maintaining very strong risk adjusted capitalisation. Downward rating pressure may emanate from sustained weakening in earnings capacity adversely impacting risk adjusted capitalisation and liquidity.

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 (November 2017)   Last rating (November 2017)
Claims paying ability: AA-(MU)   Claims paying ability: BBB
Outlook: Stable   Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst     Secondary Analyst
Vinay Nagar     Siyuan Lu
Senior Credit Analyst     Junior Credit Analyst
(011) 784-1771     (011) 784-1771
vinay@globalratings.net     siyuanl@globalratings.net

Committee Chairperson

     
Susan Hawthorne      
Senior Credit Analyst      
(011) 784-1771      
susanh@globalratings.net      

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated May 2018

Swan Insurance Company Ltd rating reports, 2013-2014
Swan General rating reports, 2015-2017

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 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 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.

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 2017
  • Unaudited interim results to 30 June 2018
  • Budgeted financial statements for 2018
  • Annual statutory returns to 31 December 2017
  • Other relevant company specific information

The ratings above were solicited by, or on behalf of, the rated entity, 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

Accounting A process of recording, summarising, and allocating all items of income and expense of the company and analysing, verifying and reporting the results.
Agency An insurance sales office which is directed by an agent, manager, independent agent, or company manager.
Assets A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
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 Base The issued capital of a company, plus reserves and retained profits.
Cash Funds that can be readily spent or used to meet current obligations.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
Conditions Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.
Coverage The scope of the protection provided under a contract of insurance.
Credit Rating Agency An entity that provides credit rating services.
Deductible The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
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.
Financial Statements Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.
International Scale Rating LC 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.
Interest Money paid for the use of money.
Investment Income The income generated by a company’s portfolio of investments.
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.
National Scale Rating 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.
Net Profit Trading/operating profits after deducting the expenses detailed in the profit and loss account such as interest, tax, depreciation, auditors’ fees and directors’ fees.
Rating Horizon The rating outlook period
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.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Securities Various instruments used in the capital market to raise funds.
Short Term Current; ordinarily less than one year.
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.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
Upgrade The assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade.
   

For a detailed glossary of terms please click here

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

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