|Rated entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|Swan Reinsurance PCC – Liberty Health Cell||Financial strength||National||BBB-(KE)||Stable Outlook|
Liberty Health Cell’s rating reflects the cell’s strong financial profile, partly offsetting its limited business profile and operation in higher risk markets. The analysis considers the standalone attributes of the cell given the legal separation of its assets from those of Swan Reinsurance PCC (“Swan Re”) and the other cells. However, the cell is viewed to be operationally reliant on Swan Re and its failure would potentially be a significant credit negative if there is a delay in transferring to another promoter.
The rating is constrained by Liberty Health Cell’s exposure to higher risk operating environments, with particularly high exposure to Mozambique and a fairly small portion of assets domiciled in Mauritius.
Competitive position is credit neutral. The cell’s strong market shares in Mozambique and Malawi are offset by limited market shares in other core markets. However, we believe that the cell benefits from a strong product franchise and relatively captive sources of revenue, given the relationship with Liberty Holdings Limited (“Liberty group”), an established partnership network and access to intellectual property. The overall business profile is nevertheless credit negative, given concentration to the accident line of business, as well as to certain cedants and underlying policyholders.
The cell has reflected strong earnings, as product design, underwriting and administration is largely undertaken within the Liberty Group, which results in a very low operating expense ratio. This has supported strong underwriting profitability, with the four-year average underwriting margin equating to 17% in FY20. Net profitability is however impacted by low USD interest rates and foreign exchange fluctuations, with return on net earned premiums averaging 16% over the same period. Despite a potential moderation in FY21 as claims frequency normalises, we expect the low operating expense base to continue to support sound net margins in the 12% to 16% range.
After adjusting for a post year-end dividend, the GCR Capital Adequacy Ratio (“CAR”) moderated to c. 1.6x at FY20 from more than 2x in the previous two years, and is expected to range between 1.5x and 2x over the outlook horizon depending on the level of dividend extraction. The relationship with Liberty group and contractual solvency obligation of Liberty Health is seen to provide additional financial flexibility in a stressed scenario, contributing to our view of capitalisation strength. Coverage of net technical liabilities is considered strong, despite a reduction to 2.9x at FY20 (FY19: 5.6x) after adjusting for the dividend. However, cash coverage of operational expenses is relatively limited, equating to 3 months in FY20 (FY19: 6 months). Both capitalisation and liquidity strengths are expected to be sustained on the back of sound earnings, although these metrics are sensitive to further dividend distributions.
The Stable Outlook reflects expectations that the financial profile will remain strong, supported by sound earnings and cash flow generation. The business profile is likely to remain credit negative given limited market shares in most jurisdictions of operation, inherent product concentration and high single policyholder / cedant exposures.
The rating could be upgraded if capitalisation strengthens and is maintained above 2x, while liquidity and earnings remain at current levels. Negative rating action could result from a sustained reduction in earnings or liquidity, or further material dividend extractions.
|Primary analyst||Susan Hawthorne||Senior Analyst: Insurance Ratings|
|Johannesburg, ZA||SusanH@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
|Registered Mauritius Office|
|Level 6, GFin Tower, 42 Hotel Street, Cybercity, Ebene, Mauritius, 72201|
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, June 2021|
|GCR Insurance Sector Risk Scores, April 2021|
Swan Reinsurance PCC – Liberty Health Cell
|Rating class||Review||Rating scale||Private Rating||Outlook/Watch||Date|
|Financial strength||Initial/last||National||BBB-(KE)||Stable Outlook||July 2021|
Risk score summary
|Capitalisation||The provision of capital for a company, or the conversion of income or assets into capital.|
|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.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|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.|
|Upgrade||The rating has been raised on its specific scale.|
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 the rated entity, security or financial instrument.
The credit rating has been disclosed to the rated entity. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual 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 the entity to accord the credit rating included:
- The draft audited financial results to 31 December 2020
- Three years of comparative audited and unaudited numbers to 31 December
- Full year budgeted financial accounts to 31 December 2021
- Unaudited interim results to 31 March 2021
- Other relevant documents