Announcements

GCR affirms Zimnat Life Assurance Company Limited’s rating of A-(ZW); Outlook Stable.

Johannesburg, 14 July 2017– Global Credit Ratings has today affirmed the national scale financial strength rating assigned to Zimnat Life Assurance Company Limited of A-(ZW), with the outlook accorded as Stable. The rating is valid until June 2018.

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:

Zimnat Life’s earnings measured at a strong level, albeit with earnings risk expected to increase going forward. Strong earnings were underpinned by a well contained total benefits paid to total income ratio (review period average: 43%), translating to a sound operating margin of 21% over the review period (FY16: 23%). This notwithstanding, current year operating profitability benefited from a sizeable unrealised gains on equities, which offset a rising trend in benefits paid relative to recurring income. Excluding such gains, operating margins could have weakened materially to 7% in FY16. In this respect, operating margins have potential to remain suppressed (BGT17: 8%), reflecting a possible upward migration in the benefits paid to total income ratio (BGT17: 56%; FY16: 41%). As such, earnings capacity is expected to be a key rating consideration over the rating horizon.

Risk adjusted capitalisation was maintained at an intermediate level, with shareholder funds coverage of policyholder liabilities strengthening marginally to 45% at FY16 (FY15: 43%). This was a function of sound capital generation from operations, albeit with elevated market risk representing an offsetting factor. Risk adjusted capitalisation could be pressurised in FY17, reflecting an anticipated moderation in earnings generation and increased exposure to high risk investments, albeit remaining intermediate.

Liquidity metrics measured at a moderately strong level, with cash coverage of policyholder liabilities registering at 0.5x at FY16 (FY15: 0.4x). This reflects strong cash inflows on the deposit administration business, albeit offset by the insurer’s increasing exposure to high risk assets. In this respect, liquidity is expected to be maintained at a moderately strong level going forward, although could be sensitive to a further rebalancing of the investment portfolio into financial assets. In this respect, GCR views overall asset liability matching to be limited by a very high and growing exposure to high risk assets.

Zimnat Life continues to reflect a moderately strong competitive position, with the strategic revenue drive in individual life offsetting the adverse impact of softening group life markets. Accordingly, market share was maintained at a sound level of 5.3% in FY16 (FY15: 5.5%). Going forward, revenue traction is expected to be bolstered by the rebranding to reflect the association with Sanlam Emerging Markets. This is likely to improve business retention in the highly contested group life business, while broadening prospects for new business on both the domestic and diaspora market. Accordingly, there are prospects for the insurer’s competitive position to strengthen over the medium term.

The insurer displays a moderately strong level of earnings diversification, underpinned by an almost balanced participation on both insurance and investment contracts. This has been supported by revenue traction in individual life, with the line’s share of total revenue having increased to 27% in FY16 (FY15: 22%). Going forward, the revenue mix is expected to reflect increased exposure to retail risks, partially moderating a possible increase in exposure to high risk annuity products. In this respect, earnings diversification is expected to be maintained at a moderately strong level over the rating horizon.

Material reinsurance counterparties evidence an intermediate aggregate level of counterparty strength. In addition, the maximum net deductible is viewed to be conservative at less than 1% of FY16 capital.

GCR views country risk factors to be elevated, and a systemic rating consideration applicable to insurers. Operational challenges are likely to persist given the uncertain socio-political outlook, severe liquidity strain, reduction in banking sector stability and weak macroeconomic fundamentals.

Zimnat Life’s national scale rating currently matches GCR’s rating ceiling applicable for the Zimbabwean market. Conversely, negative ratings pressure could develop on the back of an aggressive investment strategy thereby affecting liquidity strength, and from a persistent deterioration in the operating result, coupled with capitalisation contracting on a sustained basis. Should the economic or socio-political outlook deteriorate further, the rating ceiling of the insurance sector may be reviewed.

NATIONAL SCALE RATINGS HISTORY
 
Initial rating (November 2011)
Financial strength: BBB+(ZW)
Outlook: Stable
 
Last rating (June 2016)
Financial strength: A-(ZW)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Godfrey Chingono
Credit Analyst
(011) 784-1771
godfreyc@globalratings.net
 
Committee Chairperson
Marc Chadwick
Sector Head: Insurance Ratings
(011) 784-1771
chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Long Term Insurance Companies, updated July 2016

Zimnat Life Assurance Company Limited rating reports, 2011-2016

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 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; and 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 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 includes:

  • Audited financial results to 31 December 2016
  • Four years of comparative audited numbers
  • Budgeted financial statements for 2017
  • Actuarial valuation report for 31 December 2016
  • The current year reinsurance cover notes
  • Other non-public statistical information

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.

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.
Assets A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Benefits Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.
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.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
Country Risk The range of risks emerging from the political, legal, economic and social conditions of a country that have adverse consequences affecting investors and creditors with exposure to the country, and may also include negative effects on financial institutions and borrowers in the country.
Coverage The scope of the protection provided under a contract of insurance.
Deductible The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.
Diversification Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
Earned Premium That part of the premium applicable to the expired part of the policy period, including the short-rate premium on cancellation, the entire premium on the amount of loss paid under some contracts, and the entire premium on the contract on the expiration of the policy. When a premium is paid in advance for a certain time, the company is said to “earn” the premium as the time advances.
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.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
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.
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.
Operating Margin Measures the efficiency of profit generation from investments and underwriting.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.
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
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 (1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
Short Term Current; ordinarily less than one year.
Upgrade The assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade.
Working Capital Working capital usually refers to the resources that a company uses to finance day-to-day operations. Changes in working capital are assessed to explain movements in debt and cash balances.

For a detailed glossary of terms please click here

GCR affirms Zimnat Life Assurance Company Limited’s rating of A-(ZW); Outlook Stable.

image_pdfPDF View

Leave a Reply



ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.