Johannesburg, 30 November 2017 – Global Credit Ratings has today affirmed the national scale financial strength rating assigned to Swan Life Ltd of AA-(MU), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale financial strength rating assigned to Swan Life 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 Life Ltd (“Swan Life”) based on the following key criteria:
Swan Life’s ratings reflect the insurer’s very strong liquidity and competitive position, which have been recorded at very high levels historically, coupled with a consistent level of earnings strength. These factors are projected to be sustained at stable levels going forward. While risk adjusted capital registered at a moderately strong level, the metric has trended downwards over the review period, following a gradual reduction in discretionary reserves. Lowered capital strength may pressure the insurer’s very strong credit profile going forward, and as such represents a key rating consideration over the rating horizon.
The insurer is one of the top players in the Mauritian long term insurance market, underpinned by 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.
Swan Life reflects moderately strong risk adjusted capitalisation, as evidenced by a conservative life fund coverage of policyholders’ liabilities ratio of 1.1x at FY16 (FY15: 1.2x). Capital strength is derived from the insurer’s allocation of excess risk margins to the life fund in order to cater for additional insurance and asset risk. Furthermore, the insurer’s statutory valuation ratios have been recorded at healthy levels relative to stress test scenarios. In this respect, the STR covered the excess of assets over liabilities by 4.0x at FY16 (FY15: 4.7x). However, capitalisation metrics reflect a decreasing trend as a result of successive reduction in the risk margin.
Liquidity is viewed to be very strong, with sizeable cash and equivalents held by the insurer (FY16: MUR11.1bn). In this regard, the insurer’s liquidity metrics have remained strong over the review period, with cash and equivalents coverage of life fund measuring at a stable 0.3x. Furthermore, Swan Life’s liquidity is viewed as being able to absorb any potential loan transfer to Swan General Ltd (“Swan General). In GCR’s view, liquidity metrics are likely to remain at strong levels over the rating horizon underpinned by the insurer’s consistent asset allocation with regards to liquid assets.
The insurer’s asset liability matching is viewed to be well managed, with the insurer displaying a high buffer of adjusted asset values over possible short term liability requirements. Swan Life’s exposure to capital market volatility in terms of market-linked products is limited by the transfer of risk exposure to policyholders for the majority of such offerings, with the associated assets and liabilities ring-fenced within the life fund. Swan Life also exhibits adequate liquidity relative to operational requirements.
The insurer has been consistently profitable at the operating line, underpinned by an overall well contained benefit pay-out experience. Additionally, total expenses to total income have 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 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 accompanied by stability in key credit protection metrics. Downward rating pressure could emanate from sustained weakening in capitalisation metrics due to high sensitivity of risk adjusted capitalisation to evidenced reduction in discretionary reserves. A material loss of market share and/ 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 2016)||Last rating (September 2016)|
|Financial strength: AA-(MU)||Financial strength: BBB|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Nyasha Chikwengo|
|Sector Head: Insurance Ratings||Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Long Term Insurance Companies, updated July 2017
|Swan Insurance Company Ltd rating reports, 2013-2014|
|The Anglo Mauritius Assurance Society Limited (“AMAS”) rating reports, 2013-2014|
|Swan Life Ltd rating reports, 2015 – 2016|
|Swan General Ltd (“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 Life 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 Life Ltd with no contestation of the ratings.
The information received from Swan Life 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 June 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.
|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 Life Ltd’s rating of AA-(MU); Outlook Stable.