Announcements Criteria Research

GCR Publishes Insurance Sector Risk Scores for Benin, Botswana, Cameroon, Ghana, Malawi, Mauritius, Philippines and Tanzania

Johannesburg, 30 July 2019: GCR Ratings (“GCR”) has published Insurance Sector Risk Scores for eight countries.

These Insurance Sector Risk Scores are available for download at gcrratings.com/risk-scores/.

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 will periodically publish updated “Insurance Sector Risk Scores”, which will supersede previous publications. The publication titled “GCR Insurance Sector Risk Scores, 30 July 2019”, available at https://gcrratings.com/risk-scores/, supersedes the article published on 10 July 2019.

Insurance Sector Risk Scores

Republic of Benin, Sector Risk Score 2.75. Country Risk Score 3*, Mapping Table 3.0 to 3.5

Benin’s sector risk score of ‘2.75’ reflects GCR’s view of an intermediate regulatory environment (with a solvency assessment which is not risk based, and relatively low transparency levels). The score factors in moderately high industry earnings’ risk, which is a function of sound investment returns being partially offset by weak underwriting performance. GCR also considers the very low level of financial inclusion, with insurance penetration well below 1% and insurance density of less than USD10. Growth potential is moderately healthy, with real premium growth measuring around 5%. Barriers to entry are viewed to be moderately high, with established players dominating the market (the top five players account for more than 65% of total industry premiums), and limited scope for new entrants. The Benin banking sector score has a negative impact on the insurance sector risk score.                                                                            

Republic of Botswana, Sector Risk Score 5.0. Country Risk Score 9.25*, Mapping Table 9.0 to 9.5

Botswana’s insurance sector risk score of ‘5.0’ reflects the country’s intermediate insurance penetration (2.8%), compared to regional peers (2.5%). The score also factors in very low insurance density at USD209, albeit measuring higher than regional peers. GCR considers the intermediate regulatory framework, with a solvency assessment regime which is currently not risk based, albeit plans are underway to implement a risk based capital framework. Note is taken of the moderation in growth potential, with real premium growth registering around 1%. Recent margin compression and systematic reduction in investment yields results in an intermediate level of earnings’ risk. The market is mainly dominated by the regional brands, with the top five insurers accounting for more than 75% of total industry premiums. Accordingly, barriers to entry are viewed to be moderately high, with limited successful entrance of new participants over the last five years. Botswana’s financial sector score has a neutral impact on the insurance sector risk score.    

Republic of Cameroon, Sector Risk Score 2.75. Country Risk Score 3.75*, Mapping Table 3.5 to 4.0

Cameroon’s insurance sector risk score of ‘2.75’ balances GCR’s view of an intermediate regulatory environment (with a solvency assessment that is not risk based and low levels of transparency), moderately high earnings risk and moderately healthy growth potential (with real growth registering around 5%). The score also factors in intermediate barriers to entry, with limited number of successful entrants into the market over the last 10 years. The market is fairly competitive, with the top five players combined accounting for 46% of total industry premiums, resulting in relatively stable market dynamics. The industry reflects a low level of financial inclusion, with insurance penetration (1%) and density (USD15) registering at very low levels. The financial sector score has a negative impact on the insurance sector risk score.

Republic of Ghana, Sector Risk Score 4.25. Country Risk Score 3.75*, Mapping Table 3.5 to 4.0

Ghana’s insurance sector reflects a moderately strong regulatory environment (with a provisional risk based solvency assessment framework and strong implementation and enforcement), healthy growth potential, and moderately high barriers to entry (following the increase in minimum capital requirements to GHS50m for insurers and GHS125m for reinsurers). The score factors in very low insurance penetration (less than 1%) and very low density (less than USD10). Weak underwriting performance is partially offset by strong investment income (given the comparatively high interest rate environment). GCR also considers the fairly competitive structure of the market, with the top five players accounting for about 45% of gross premiums, resulting in fairly stable dynamics. The Ghanaian banking sector score has a negative impact on the insurance sector risk score.

Republic of Malawi, Sector Risk Score 2.75. Country Risk Score 1.5*, Mapping Table 1.0 to 2.0

Malawi’s insurance sector risk score of ‘2.75’ balances an intermediate regulatory oversight, low insurance penetration (1.4%), very low insurance density (USD5) and healthy growth potential. Cognisance is taken of the absence of minimum premium rates (resulting in rates pressure which may gradually result in a significant moderation in growth). This, coupled with price-based competition, results in high earnings risk.  In GCR’s view, given the low likelihood of new entrants into the market, barriers to entry are viewed to be moderately high. The financial sector score for Malawi has a negative impact on the insurance sector risk score.    

Republic of Mauritius, Sector Risk Score 6.0. Country Risk Score 9.25*, Mapping Table 9.0 to 9.5

Mauritius’ insurance sector risk score of ‘6.0’ reflects GCR’s view of a strong regulatory environment (with a risk based solvency assessment regime and very high levels of transparency), moderately high barriers to entry and fairly competitive structure of the market, with the top five players accounting for about 75% of gross premiums. The score also factors in low real growth potential, intermediate insurance penetration (4.2%; global average: 6.3%), and comparatively low insurance density (USD437; global average: USD650). Recent net margin compression has resulted in an intermediate level of earnings risk. The financial sector score has an overall neutral impact on the insurance sector risk score.                                                    

Republic of Philippines, Sector Risk Score 6.5. Country Risk Score 9.0*, Mapping Table 9.0 to 9.5

Philippines’ insurance sector risk score of ‘6.5’ balances a strong regulatory environment (with a risk based solvency assessment regime and high levels of transparency), and healthy growth potential, with low insurance penetration (1.8%) and very low insurance density (less than USD75). The score also factors in high barriers to entry, with very limited number of successful market participants over the last five years, in the context of a highly competitive market structure (the top five players accounting for about 40% of total industry gross premiums). Net margins are relatively healthy, albeit remaining highly susceptible to weather related events. The financial sector score has an overall neutral impact on the insurance sector risk score.

Republic of Tanzania, Sector Risk Score 3.25. Country Risk Score 4.0*, Mapping Table 4.0 to 4.5

Tanzania’s insurance sector risk score of ‘3.25’ reflects a moderately strong regulatory environment (with a solvency assessment regime that is currently not risk based and strong regulatory implementation and intervention). The score also factors in very low insurance penetration of 0.5% (regional peers: 2.5%; global average: 6.3%), and very low insurance density of less than USD10. Growth potential is viewed to be moderately healthy (five year gross premium real compound annual growth rate: 4%). GCR also takes into account intermediate earnings risk, with strong investment income, partially offset by underwriting margin compression. The score factors in the fairly competitive structure of the market, with the top five players accounting for about 45% of total industry gross premiums, and the limited number of successful new entrants in the market (given the strict local content enforcement). GCR factors in the financial sector score, which has a negative impact on the insurance sector risk score.

*Country Risk scores as at date of publication.

Analytical contacts

Primary analyst Yvonne Mujuru Sector Head: Insurance
Johannesburg, South Africa YMujuru@GCRratings.com +27 11 784 1771
     
Secondary analyst Godfrey Chingono   Deputy Sector Head: Insurance
Johannesburg, South Africa GodfreyC@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 Country Risk Scores, June 2019

GCR Financial Institutions Risk Scores, July 2019

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