Announcements Insurance Rating Alerts

GCR downgrades Lion of Africa’s national scale financial strength rating to CC(ZA), Negative Outlook

Rating Action

Johannesburg, 30 March 2020 – GCR Ratings (“GCR”) has downgraded Lion of Africa Insurance Company Limited’s (“Lion of Africa”) national scale financial strength rating to CC(ZA) from CCC-(ZA), with a Negative Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Lion of Africa Insurance Company Limited Financial strength National CC(ZA) Negative Outlook

Rating Rationale

The rating downgrade follows a weakening in liquidity since the prior rating review, with the cash balance equating to R10m at 2M F20 (FY19: R40m; 1H F19: R128m). While note is taken of the plans in place to meet near term liquidity requirements, including parental liquidity support and anticipated reinsurance recoveries, in GCR’s view, the reduced cash balance has increased the risk of delayed claims settlement (particularly in terms of high value losses), given potential for mismatches in the timing and quantum of reinsurance recoveries and cash replenishments.

Outlook Statement

GCR expects liquidity to remain reliant on external liquidity sources to support claims settlement. This may be exacerbated by uncertainty regarding the size and timing of outstanding claims and the potential lag in corrective actions and/or reinsurance recoveries.

Rating triggers

We could lower the rating if policyholders are not expected to be paid without materialisation of an unforeseen circumstance, or if we observe selective or general non-payment of claims. The rating could strengthen on the back of an increase in cash and liquidity. In this regard, GCR notes that a mediation process is underway that could result in Lion of Africa benefitting from a large reinsurance recovery, and will monitor developments in this respect.

Analytical Contacts

Primary analyst Susan Hawthorne Senior Analyst
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

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

Lion of Africa Insurance Company Limited
Rating class Review Rating Scale Rating Outlook Date
Claims paying ability Initial National BBB(ZA) Stable May 2017
Financial strength Last National CCC-(ZA) Negative Watch December 2019

Glossary

Cash Funds that can be readily spent or used to meet current obligations.
Claim 1. A request for payment of a loss, which may come under the terms of an insurance contract (insurance). 2. A formal request or demand (corporate finance).
Contract An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the contract.
Downgrade The rating has been lowered on its specific scale.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. 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.
Obligation The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Settlement Full repayment of an obligation.
Working Capital Working capital usually refers to the resources that a company uses to finance day-to-day operations. Changes in working capital are assessed to explain movements in debt and cash balances.

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 Lion of Africa 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.

Lion of Africa 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 Lion of Africa Insurance Company Limited and other reliable third parties to accord the credit rating included:

  • Unaudited year to date balance sheets to 31 December 2019 and 29 February 2020;
  • Other relevant documents.
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