Global Credit Ratings has accorded the above credit rating(s) on Zimnat Life Assurance Co. Limited based on the following key criteria:
Zimnat Life Assurance Company Limited (“Zimnat Life”) is a 100%-owned subsidiary of TA Holdings, which has regional interests in insurance, manufacturing and hospitality. The assurer has demonstrated sound premium growth over the review period, although GCR notes with concern the elevated rates pressure in the market. Given the acceleration in cost inflation, industry growth and profitability are therefore expected to come under further pressure in the medium term. Against this backdrop, note is taken of Zimnat Life’s elevated benefits paid (due to a rebasing of investment contract policyholder liabilities and higher group life claims), and rising operating cost pressures.
Fair value gains have nonetheless seen capitalisation levels continue to improve. As such, CAR coverage remained well above management’s minimum threshold of 3x (albeit having eased to 6x cover at FYE12, from a review period high of 7.7x). In line with recent regulatory investment guidelines, Zimnat Life’s investment profile had shifted perceptibly by 1H F13, with liquid assets (primarily money market instruments) representing 12% of assets, from a low of 2% previously. In addition, the combined property and listed equity exposure had reduced to 58% of investments (FYE12: 82%), against a medium term regulatory limit of 70%. Viewed in the context of the unavailability of long term gilt instruments domestically, the changes bode positively, although the 2 investment sub-classes collectively equated to a high 242% of the 1H F13 capital base (FYE12: 306%).
Efforts to alleviate investment risk have seen liquidity metrics improve, with cash coverage of net benefits and claims incurred rebounding to 7 months at 1H F13, from a low of just 1 month previously. Looking ahead, management remains focused on improving asset liability matching and managing down counterparty exposures, especially given the fragility of the domestic banking industry’s fragmented second tier. The lead counterparty on the assurer’s reassurance programme is, however, unrated, with secure rated Zep Re’s participation at a modest 20%.
Upward rating pressure over the medium term could emanate from further market penetration, underpinned by the implementation of a comprehensive risk management framework, as well as risk appropriate capitalisation and solvency levels. However, material capital erosion resulting from, inter alia; persistently weak operating performance (driven by elevated claims and overheads in the face of sub-economic pricing), deteriorating asset quality or inappropriate asset liability matching would place downward pressure on the rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Nov/2011)|
|Financial Strength: BBB+(ZW)|
|Last rating (Sep/2012)|
|Financial Strength: BBB+(ZW)|
|+27 11 784 1771|
|Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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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 rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Zimnat Life Assurance Co. 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/s has been disclosed to Zimnat Life Assurance Co. Limited with no contestation of the rating.
The information received from Zimnat Life Assurance Company Limited and other reliable third parties to accord the credit rating included 2012 audited annual financial statements (plus three years of comparative numbers), full year detailed budgeted financial statements for 2013, unaudited year to date management accounts to June 2013, reinsurance cover notes for 2013, an actuarial valuation statement, the assurer’s risk framework, reserving methodologies and capital management policy.
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.