GCR has reaffirmed Credit Guarantee Insurance Corporation of Africa Limited (“CGIC”) national scale ZAR currency claims paying ability rating of AA (double A).
CGIC is the market leader in the credit guarantee segment, supported by a well established brand and an experienced management team. Furthermore, the insurer’s extensive credit information database is considered a competitive advantage. Given its line of business, the insurer remains highly exposed to credit cycles and economic growth. Since F05, underwriting profitability has deteriorated, culminating in significant losses in F09, at the height of the global financial crisis. Despite the rebound in profitability reported in F10, threats of a second global recession and the resultant impact on revenue growth and underwriting profitability in the short to medium term were considered.
Despite the active reduction in equity market exposure since 2007, listed shares still accounted for 69% of shareholders funds at FYE10, implying a high degree of capital risk. In this regard, a 10% loss in value of listed shares could lower the solvency margin by up to five percentage points. This is particularly relevant given the current bout of volatility/weakness in global equity markets and global economic growth concerns.
Notwithstanding the above, following the large capital distributions at the start of the review period, the international solvency margin has stabilised above 70% over the past three years, and is expected to be maintained above this level in F11. GCR considers this to be appropriate for the current rating. The rating was further supported by the insurer’s diversified investment portfolio, with adequate liquidity.
CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.