Johannesburg, 4 November 2015 — Global Credit Ratings has today affirmed the national scale financial strength rating assigned to Swan Life Limited, formerly known as The Anglo Mauritius Assurance Society (“AMAS”) at AA-(MU), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale financial strength rating assigned to Swan Life 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 Life Limited (“Swan Life”) based on the following key criteria:
The insurer reflects very high risk absorption capacity, supported by an allocation of large risk margins to the life fund in order to cater for additional insurance and asset risk. Life fund coverage of the actuarial value of insurance liabilities remained conservative at 1.2x, cementing the favourable historical trend observed. Furthermore, the insurer’s statutory valuation ratios have been recorded at healthy levels relative to risk based capital requirements and stress test scenarios.
Asset liability matching is viewed to be very well managed, with the insurer displaying a high buffer of adjusted asset values over possible short term liability requirements. Swan Life’s exposure to market volatility in terms of market-linked products is limited by the transfer of risk exposure to policyholders for the majority of offerings, with the associated assets and liabilities ring-fenced within the life fund. Swan Life also exhibits adequate liquidity relative to operational requirements.
Swan Life is one of the leading players in the Mauritian long term insurance market, with a strong brand and well established relationships. The insurer has registered sound and relatively stable revenue growth, underpinned by income from linked and non-linked products within the cross-sectional offering. The insurer has been consistently profitable at the operating line, underpinned by an overall contained benefit pay-out experience. Additionally, the total expense ratio has been contained within a relatively narrow band over the review period.
Swan Life’s reinsurance programme utilises counterparties of high credit quality, reflecting secure ratings on an international scale. Additionally, maximum net deductibles per risk and event are limited to levels that are viewed as conservative.
The Swan group’s medium term operational strategy centres on diversification by way of both geographic spread and business type, facilitated by privately held insurance and finance related assets. While GCR recognises the strategic value of these investments, and the potential for medium term realisation of business spread, they do 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.
The international scale rating incorporates the impact of Mauritius’ sovereign rating of BBB+.
Upward movement of the rating or outlook could develop should the insurer achieve a sustained upward trend in market share, while attaining an enhanced level of earnings diversification. A strengthening in capital adequacy may further contribute to a medium term improvements in the rating. Downward rating pressure could emanate from a substantial and sustained weakening in capitalisation and liquidity metrics to levels outside of GCR’s parameters for the current rating band. A material loss of market share, or deterioration in earnings capacity, may also give rise to negative rating pressure.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (November 2013)||Initial rating (November 2013)|
|Financial strength: AA-(MU)||Financial strength: BBB|
|Outlook: Stable||Outlook: Stable|
|Last rating (September 2014)||Last rating (September 2014)|
|Financial strength: AA-(MU)||Financial strength: 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 Long Term Insurance Companies, updated July 2015
The Anglo Mauritius Assurance Society Limited rating reports, 2013-2014
Swan Insurance Company 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 Life 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 Life Limited with no contestation of the rating.
The information received from Swan Life 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
- 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 Life Limited’s rating of AA-(MU); Outlook Stable.