Johannesburg, 01 Oct 2014 — Global Credit Ratings has today affirmed the national scale financial strength rating assigned to Zimnat Life Assurance Company Limited at BBB+(ZW); with the outlook accorded as Positive. The rating is valid until 10/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Zimnat Life Assurance Company Limited (“Zimnat Life”) based on the following key criteria:
The Positive Outlook reflects GCR’s view that the assurer will continue to sustain capitalisation at strong levels while achieving sound operating profit margins. However, cognisance is taken of the large contribution of fair value movements, which introduces a concomitantly high level of profit volatility.
Zimnat Life is a 100% owned subsidiary of TA Holdings Limited, which has interests in insurance, manufacturing and hospitality. The rating is supported by Zimnat Life’s well-entrenched position in the domestic life assurance market, as the fourth largest player. This is further underpinned by group synergies and operational as well as funding support from shareholders. GCR expects Zimnat Life’s competitive positioning to remain sound over the medium term supported by extensive distribution channels and group support.
The operating profit margin has averaged 38% over the past three years, supported by strong investment income and fair value gains. Management expect to continue cementing operating profitability in F14. Capital adequacy levels have been maintained at strong levels, with CAR cover at 7x at FYE13 (FYE12: 6x), remaining comfortably above management’s minimum CAR coverage (3x), as well as the actuary’s recommendation (2x).
Asset liability matching has been well managed, and supports the rating. The investment portfolio exhibits a high degree of exposure to listed equities and property.
Liquidity metrics improved, with cash covering net benefits and claims by 5 months at FYE13 (FYE12: 3 months). Management remains focused on managing counterparty exposures, given the fragility of the domestic banking industry’s fragmented second tier.
The lead counterparty on the reassurance programme is unrated. Nevertheless the maximum net deductible is viewed to be conservative at less than 1% of FYE13 capital.
The domestic socio-political outlook remains highly uncertain, with weak macroeconomic fundamentals, scarcity of capital and liquidity, and policy ambivalence exacerbating operational challenges.
The rating may be upgraded if the assurer continues to bed down the realised operating profit achieved over the last two years. Further market penetration and higher product diversification, underpinned by a comprehensive risk management framework may lead to positive rating movements over the medium term. This would need to be accompanied by sound risk-adjusted capital adequacy and solvency over the medium term. Conversely, weakening operating performance, reflecting a sustained downward trend in earnings potential could lead to a downward movement of the rating. Furthermore, capital erosion materially constraining CAR levels, or inappropriate asset liability matching, may lead to a downgrade.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (Nov/2011)
Financial strength: BBB+(ZW)
Last rating (Oct/2013)
Financial strength: BBB+(ZW)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Life Assurance Companies, (updated July 2014)
Zimnat Life Assurance Company Limited reports, 2011-2013
RATING LIMITATIONS AND DISCLAIMERS
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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 Company 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 Zimnat Life Assurance Company 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 the latest available audited annual financial statements for 2013 (plus four years of comparative numbers), latest auditors report to management for 2013, full year detailed budgeted financial statements for 2014, most recent year to date management accounts up to May 2014, the current year reassurance cover notes, actuarial valuation statement for 2013, and other related documents.
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.
GCR affirms Zimnat Life Assurance Company Limited’s rating at BBB+(ZW); Outlook Positive.