Johannesburg, 10 May 2018– Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Zimnat Lion Insurance Company Limited of A-(ZW), with the outlook accorded as Stable. The rating is valid until May 2019.
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 has demonstrated capacity to manage capital effectively over the review period, with capital growing by an average annual rate of 25% to USD11.6m at FY17. This has been driven by strong and consistent capital generation from operations, supplemented by a capital injection of USD2m in FY15, and more recently a realised fair value gain of USD3.5m in FY17. Simultaneously, the insurer increased controls on aggregate risks; thus, elevating risk adjusted capitalisation to a very strong range, relative to previous strong levels. Projected healthy growth in available capital is expected to sustain risk adjusted capitalisation within a similar range over the outlook horizon, albeit noting the possible increase in underwriting risk over the medium term.
Liquidity measured at a strong level in FY17, with high liquidity metrics moderated by intermediate banking counterparty strength. Liquidity metrics were supported by growth in cash and equivalents, against a modest increase in net technical liabilities (FY17: USD5.4m; FY16: USD5.0m). Resultantly, cash coverage of net technical liabilities and average monthly claims registered at a high 1.5x (FY16: 1.1x) and 13 months (FY16: 11 months), with the created headroom supporting higher levels of rating factor resilience. In this respect, liquidity is expected to be sustained within a strong range over the rating horizon, consistent with expectations of an unchanged asset allocation, stable cash flows from operations and slow growth in net technical liabilities.
Earnings capacity is viewed to be strong, albeit under downward pressure. Technical profitability declined in the recent two year cycle relative to the prior cycle, with the insurer’s respective average technical margin easing by eight percentage points to 42%. This was due to an increasing loss ratio, coupled with influence from variable business acquisition costs. While a favourable trend in the operating expense ratio partially countered developing underwriting margin compression (BGT18: 8%; FY17: 8%; FY16: 13%), GCR views variable technical performance to increase downside risks to base case underwriting margins. This may be mitigated by ongoing corrective measures over the medium term.
Zimnat Lion evidences a solid business profile, supported by a strong competitive position and fairly good spread of revenue sources. In this regard, the insurer’s market share equated to an estimated 13% in FY17 (FY16: 12%), underpinned by strong synergies derived from the group and enhanced brand strength. The earnings were spread across four lines of business, albeit remaining heavily reliant on motor and property in line with industry norms. Nonetheless, GCR views country risk factors to be elevated, and a systematic rating consideration applicable to insurers. This serves as a rating constraint. Operational challenges are likely to persist over the rating horizon, albeit with positive changes in the socio-political outlook and macroeconomic fundamentals possible over the medium term, should the political situation stabilise.
The reinsurance panel reflects an intermediate aggregate level of credit strength. Nonetheless, the maximum net deductible per risk and event was maintained at a moderately conservative level relative to capital. Furthermore, GCR’s view of reserving sufficiency is positively impacted by the certification of reserve levels by a qualified external actuary.
The rating currently matches the national scale ceiling applicable to entities operating within the Zimbabwean insurance industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. Conversely, downward rating pressure may arise from a sustained weakening in earnings capacity and/or a deterioration in asset quality.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (post US dollarisation May 2009)|
|Claims paying ability: A-(ZW)|
|Last rating (May 2017)|
|Claims paying ability: A-(ZW)|
|Primary Analyst||Committee Chairperson|
|Godfrey Chingono||Yvonne Mujuru|
|Senior Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784 – 1771||(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
Zimnat Lion Insurance Company Limited rating reports, 2009-2017
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/RATING-SCALES-DEFINITIONS. 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 audited annual financial statements to 31 December 2017
- Four years of comparative audited numbers
- Unaudited interim results to 31 March 2018
- Budgeted annual financial statements for December 2018
- Actuarial valuation report for 2017
- 2018 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.
|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.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|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 Zimnat Lion Insurance Company Limited’s rating of A-(ZW); Outlook Stable.