GCR increases Botswana’s insurance sector risk score to ‘5.25’ from ‘5.00’

Sep 30, 2021

Summary

Johannesburg, 30 September 2021: GCR Ratings (“GCR”) has increased the insurance sector risk score for Botswana to ‘5.25’ from ‘5.00’ on the overall positive impact of enhanced regulatory environment and healthier competitive dynamics, more than offsetting concerns from slower industry gross premiums growth rates and increased industry concentration from recent mergers and acquisitions.

The Insurance Sector Risk Scores are available for download at gcrratings.com/risk-scores/ and relevant sector research pieces are available at: http://gcrresearch.com/reports/house/industry-reports/.

The GCR Insurance Sector Risk Assessment

The Insurance sector risk score (ranging from 0 to 15) is a key factor in the operating environment component score. The core of the GCR Ratings Framework is based on GCR’s opinion that an entity’s operating environment largely frames its creditworthiness. As a result, the operating environment analysis anchors the underlying risk score for the GCR rating methodology. GCR combines elements of the country risk and sectoral risk analysis, blended across countries for entities operating across multiple jurisdictions, to anchor an insurer to its current operating conditions. For more details on any of the above, please read the related criteria and research listed below.

GCR periodically publishes updated “Insurance Sector Risk Scores”, which will supersede previous publications. The publication titled “GCR Insurance Sector Risk Scores, 30 September 2021”, available at https://gcrratings.com/risk-scores/, supersedes the article published on 22 April 2021.

Insurance sector risk scores

Republic of Botswana, Sector Risk Score 5.25. Country Risk Score 7.75*, Mapping Table 7.5 to 8.0

Botswana’s insurance sector risk score of ‘5.25’ balances an enhanced regulatory environment, healthier competitive dynamics, slower real gross premium growth rate and increased industry concentration. The enactment of Insurance Industry Act 2015 (effective 2019) along with various prudential measures entrenched risk-based solvency management and enhanced control of underwriting behaviour to manage industry earnings and liquidity risk. Nonetheless, this was offset by increased industry concentration following several high-profile mergers and acquisitions in the short-term industry and historically very high concentration in the long-term industry. The country’s insurance penetration remained comparatively high within the region at c.3.0%, lending support to overall sector strength. The score also factors in low insurance density of USD202, albeit measuring higher than regional peers. Improved prudence in industry conduct is expected to reduce volatile and slower real gross premium growth trends in the short-term industry, with similar trends beginning to take hold in the long-term industry. We positively note an improvement in short-term industry underwriting margins, complementing the long-term industry, and expect this trend to be supported by the adoption of risk-based supervision. Botswana’s financial sector score has a neutral impact on the insurance sector risk score.

Analytical contacts

Primary Analyst	Godfrey Chingono	Deputy Sector Head: Insurance Ratings
Johannesburg, South Africa	GodfreyC@GCRratings.com	+27 11 784 1771

Primary Analyst	Matthew Pirnie	Group Head of Ratings
Johannesburg, South Africa	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, August 2021

GCR Financial Institutions Risk Scores, September 2021

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