Johannesburg, 3 June 2015, Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Zimnat Lion Insurance Limited of BBB+(ZW); with the outlook accorded as Positive. The rating is valid until May 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Zimnat Lion Insurance Company Limited (“Zimnat Lion”) based on the following key criteria:
Zimnat Lion reflects a substantially improved level of earnings capacity. The strengthened profit track record in recent years has been supported by substantially improved cost efficiencies, coupled with a contained net loss experience. Plans to continue moderating costs while accessing broader distribution networks are viewed by GCR to facilitate the insurer’s underwriting margin trajectory going forward, underpinning the Positive outlook. This is supported by Zimnat Lion’s strong and improved competitive position, with increased market share underpinned by portfolio uptake in targeted lines. Zimnat Lion’s strong market position is expected to be sustained over the rating horizon.
Capital adequacy has been measured at moderately strong levels, with similar metrics expected to persist over the rating horizon. Note is taken, however, of the insurer’s lower international solvency margin (F14: 50%) relative to the peer group average (F14: 63%). Strong premium growth expectations result in stringent profit and capital exposure management being required to maintain risk-adjusted solvency at rating-consistent levels going forward.
Liquidity metrics remain subdued, with cash covering technical liabilities by 0.6x in F14 (F13: 0.4x), representing a relative rating weakness. Strengthened cash flow generation is expected to increase cash coverage of technical provisions and average claims to rating-consistent levels over the rating horizon.
Reinsurance arrangements are placed with counterparties with high to mid-level national scale ratings, containing the reinsurance counterparty risk at a relatively low level. The maximum net deductible per risk and event is contained to a moderately conservative level. GCR’s view of reserving sufficiency is positively impacted by the certification of reserve levels by a qualified actuary.
GCR views country risk factors to be elevated, and a systematic 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.
A proven track record, in terms of sustaining the recent profit track record at strong levels, coupled with robust cashflow generation to significantly enhance the insurer’s liquidity profile, while maintaining solvency metrics at strong levels could support upward rating movement over the medium term. Conversely, the reversal of current profitability trends would likely put downward pressure on the rating. A material weakening in key liquidity or solvency metrics to historic levels could also warrant negative rating actions.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Post US dollarization May 2009)|
|Claims paying ability: A-(ZW)|
|Last rating (June 2014)|
|Claims paying ability: BBB+(ZW)|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014
Zimnat Lion Insurance Company Limited rating reports, 2009-2014
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 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 Lion Insurance 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 Lion Insurance Company Limited with no contestation of the rating.
The information received from Zimnat Lion Insurance Company Limited and other reliable third parties to accord the credit rating included:
- The 2014 audited annual financial statements
- 4 years of comparative audited numbers
- Unaudited interim results as per 31 March 2015
- Budgeted financial statements for 2015
- 2015 reinsurance cover notes
- 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.
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 utilised in this announcement please click here