Global Credit Ratings has accorded the above credit rating on Zimnat Lion Insurance Company Limited based on the following key criteria:
Zimnat Lion is a wholly owned subsidiary of Freecor Holdings Limited, which is in turn 100% owned by TA Holdings Limited, a group with interests in insurance, hospitality and manufacturing across sub-Saharan Africa. TA Holdings’ major shareholder is FMI Investments (Pvt) Ltd with a 30% stake. Other shareholders include Old Mutual Life Assurance (14%) and Masawara (Mauritius) Limited (9%). Shareholder support has previously been evidenced through funding provided in the form of US$1m in preference shares (convertible to equity at the holder’s option).
Strong premium growth, in conjunction with increased retention has seen international solvency gradually recede over the review period. Furthermore, in the absence of new capital, solvency is expected to decline further to 46% in F13, from 63% in F12. In addition, capital risk remains elevated with property investments representing around 50% of FYE12 capital. On the back of sound operating cash flows, this underpinned enhanced cash holdings and improved liquidity metrics in F12. Further, a combination of lower relative claims and a reduction in costs saw Zimnat Lion report its first underwriting profit for the period under review. This notwithstanding, relative expenses remain high, exposing the insurer to higher claiming years. Moreover, the insurer exhibits significant reliance on motor, with 68% of NWP derived from this class, elevating operational risk.
In the absence of capital support and in light of robust growth projections, a short term improvement of the rating is considered unlikely. Over the medium to longer term, a persistent improvement in the solvency margin, accompanied by a demonstrated ability to consistently generate underwriting profits (through a continued focus on cost rationalisation) and reduce volatility in retained earnings would bode well for the rating. GCR would not expect international solvency to fall below 45% over the medium term, to support the current rating. This is also premised on the basis that the recent positive trend in underwriting profitability remains intact. The highly uncertain socio-political outlook is likely to exacerbate challenges within the operating climate, constraining capital inflows and economic growth. Should this deteriorate further, it could warrant a downward revision of the rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (post dollarisation: May/2009)|
|Claims paying ability: A-(ZW)|
|Last rating (May/2012)|
|Claims paying ability: BBB+(ZW)|
|Primary Analyst||Secondary Analyst|
|Marc Joffe||Thato Modungoa|
|Sector Head: Insurance||Junior Analyst|
|+27 11 784 1771||+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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 Lion Insurance Company Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info 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 latest available audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, the current year reinsurance cover notes, debtors provisioning policy document, ERM processes/framework (including catastrophe management framework), reserving methodologies, capital management policy.