Announcements Insurance Rating Alerts

GCR assigns Lidwala Insurance Company Limited an Eswatini national scale financial strength rating of A(SZ); Outlook Stable

Rating Action

Johannesburg, 20 February 2020- GCR Ratings (“GCR”) assigned Lidwala Insurance Company Limited (“Lidwala Insurance”) a national scale financial strength rating of A(SW), with the Outlook accorded as Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Lidwala Insurance Company Limited Financial strength National A(SZ) Stable Outlook

Rating Rationale

Lidwala Insurance’s national scale financial strength rating reflects a sound financial profile and competitive positioning, which are somewhat diluted by limited premium diversification.

Lidwala Insurance’s risk adjusted capitalisation is viewed to be sound, supported by healthy internal capital generation and well contained underwriting and market risks. However, the insurer’s capitalisation assessment is negatively impacted by a relatively low capital base of USD3.3m in absolute terms at FY19 (FY18: USD2.9m). Going forward, risk adjusted capitalisation is likely to remain at similar levels, although it is likely to display sensitivity to increased underwriting risk exposure over the medium term.

Earnings are a positive rating factor, underpinned by sound underwriting margins and healthy investment returns. The five year underwriting margin equated to 8% (FY19: 7.8%; FY18: 7.6%), albeit reflecting a level of inhibition by scale efficiencies. This was supported by competitive yields on the investment portfolio with the corresponding return on revenue registering at 17% (FY18: 6%; FY17: 2%). GCR expects earnings to be maintained within a similar range over the outlook horizon.

Liquidity registered within a healthy range, with cash and stressed financial assets covering net technical liabilities by 1.7x in FY19 (FY18: 1.8x), and operational cash coverage equating to a lower 16 months (FY18: 18 months). While liquidity metrics are expected to remain within a similar range over the rating horizon, GCR notes downside risks presented by possible rapid growth in net technical liabilities in line with growth objectives.

Lidwala Insurance’s business profile is supported by its competitive positioning, albeit partially offset by limited premium diversification. The insurer has sustained its position as the second largest player in the short-term insurance industry albeit being significantly smaller than the dominant market player, with a market share of 23% in FY19 (FY18: 18%). Limited premium diversification is a result of the small domestic market premium base, exacerbated by low risk premium retention (FY18: 35%; BY20: 54%). In this regard, one line of business contributed materially to the risk base. GCR expects Lidwala Insurance’s business profile to be sustained at current levels, underpinned by its brand recognition, relatively wide distribution network and entrenched relationships with intermediaries, while an envisaged ramp- up in premium retention could support a more diverse risk base.

Outlook Statement

The Stable Outlook reflects expectations of the insurer’s financial profile remaining at strong levels, while competitive positioning remains sound over the rating horizon.

Rating triggers

A sustained improvement in earnings capacity, while maintaining other rating factors within the current range, could result in upward rating movement. Conversely, downward rating pressure could arise from a weakening in liquidity (below expected levels) and/or risk adjusted capitalisation.

Analytical Contacts

Primary analyst Godfrey Chingono Deputy Sector Head: Insurance Ratings
Johannesburg, ZA GodfreyC@GCRratings.com +27 11 784 1771
Secondary analyst Linda Matavire Insurance Associate
Johannesburg, ZA LindaM@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Head Group Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Insurance Companies, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, January 2020
GCR Insurance Sector Risk Scores, January 2020

Ratings History

Lidwala Insurance Company Limited
Rating class Review Rating Scale Rating Outlook Date
Financial Strength Rating Initial/Last National A(SZ) Stable February 2020

Risk Score Summary

Risk scores Lidwala Insurance
Operating environment 5.25
Country risk score 2.50
Sector risk score 2.75
Business profile (0.50)
Competitive position 0.50
Premium diversification (1.00)
Management and governance 0.00
Financial profile 2.00
Earnings 0.50
Capitalisation 1.25
Liquidity 0.25
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 6.75

Glossary

Premium The price of insurance protection for a specified risk for a specified period of time.
Property Movable or immovable asset.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
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.
Retention The net amount of risk the ceding company keeps for its own account.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Securities Various instruments used in the capital market to raise funds.
Security One of various instruments used in the capital market to raise funds.
Short Term Current; ordinarily less than one year.
Technical Liabilities The sum of Net UPR and Net OCR IBNR.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
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.
Yield Percentage return on an investment or security, usually calculated at an annual rate.

Salient Points of Accorded Rating

GCR affirms that a.) no part of the rating process 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 Lidwala Insurance Company Limited, security or financial instrument.

The credit rating has been disclosed to Lidwala Insurance Company Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

Lidwala Insurance Company Limited participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Lidwala Insurance Company Limited and other reliable third parties to accord the credit ratings included:

  • Company audited financial results as at 30 June 2019;
  • Four years of comparative group and company audited financial statements to 30 June
  • Full year budgeted financial statements to June 2020;
  • Unaudited interim results to 30 December 2019;
  • Reinsurance cover notes for 2019; and
  • Other relevant documents.


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