Announcements Insurance Rating Alerts

GCR revises BIC’s national and international scale financial strength ratings to A+(BW) and BB+ respectively on criteria change; Outlook Stable

Rating Action

Johannesburg, 18 December 2019 – GCR Ratings (“GCR”) has revised Botswana Insurance Company Limited’s (“BIC”) national scale financial strength (formerly claims paying ability) rating to A+(BW), Stable Outlook, from AA-(BW), Stable Outlook. GCR has also revised the international scale financial strength (formerly claims paying ability) rating to BB+, Stable Outlook, from BBB-, Stable Outlook.

Rated Entity / Issue

Rating class

Rating scale

Rating

Outlook/Watch

Botswana Insurance Company Limited

Financial strength

National

A+(BW)

Stable Outlook

International

BB+

Stable Outlook

GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the ratings for BIC were placed ‘Under Criteria Observation’. GCR finalised the review for BIC under the released Criteria for Rating Insurance Companies, May 2019. As a result, the ratings for BIC have been reviewed in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.

Rating Rationale

BIC’s ratings reflect the insurer’s strong financial profile supported by strong capitalisation and sound earnings, as well as its solid market position. These strengths are partially offset by a moderation in liquidity on the back of protracted sizeable dividend payments and somewhat limited premium diversification.

The ratings are supported by the insurer’s strong capitalisation, reflecting a sizeable capital base, which in conjunction with a comparatively low risk retention model and limited credit risk, catered for the quantum of market exposure. BIC’s liquidity is viewed to be intermediate, noting suppressed growth of the investment portfolio on the back of high dividend distributions (cumulatively amounting to BWP103m over the review period). In this respect, stressed financial asset coverage of net technical liabilities and operational requirements registered at 1.2x and 13 months respectively at FY18. Nonetheless, persistent high dividend distributions may constrain liquidity strength to below rating sufficient levels.

Earnings are viewed to be sound, reflecting healthy underwriting profitability over the last two years on the back of a normalisation in claims experience relative to the beginning of the review period (average net incurred loss ratio over FY17 and FY18: 46% vs. prior three-year average: 55%). Furthermore, year to date results reflect continued positive performance in FY19, thereby supporting the view of sustained earnings strength over the outlook horizon.

The business profile reflects BIC’s strong market position in the domestic short-term insurance industry, with a market share of 24% at FY18. The insurer’s competitive positioning is supported by strong brand recognition, acquisitive growth and access to vast technical expertise through its shareholding structure. In addition, traction in the specialty segment supported improving premium diversification of late, while the dominance of brokers in the distribution channel (FY18: 78%) is counterbalanced by moderately high policyholder diversification. This notwithstanding, the assessment is moderated given the insurer’s geographic concentration to Botswana.

 

Outlook Statement

The Stable Outlook reflects expectations that BIC will maintain its healthy market position, while the financial profile will continue to be supported by strong capitalisation and sound earnings.

Rating Triggers

Potential for upward rating movement is viewed to be limited over the short term, given sustained moderation in liquidity relative to historical levels. However, a material improvement in liquidity could be viewed positively over the medium term. Conversely, downward rating pressure may follow a deterioration in capitalisation and liquidity below rating sufficient levels.

Analytical Contacts

Primary analyst

Godfrey Chingono

Deputy Sector Head: Insurance Ratings

Johannesburg, ZA

GodfreyC@GCRratings.com

+27 11 784 1771

     

Secondary analyst

Siyuan Lu

Associate Analyst

Johannesburg, ZA

SiyuanL@GCRratings.com

+27 11 784 1771

     

Committee chair

Vinay Nagar

Senior Analyst

Johannesburg, ZA

Vinay@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, June 2019

GCR Insurance Sector Risk Scores, December 2019

FAQ for Applying Regulatory Insulation to Financial Strength Ratings, November 2019

Ratings History

Rating class

Review

Rating scale

Rating

Outlook/Watch

Date

Claims paying ability

Initial

National

A+(BW)

Stable

December 2009

Last

National

AA-(BW)

Stable

November 2018

Initial

International

BBB-

Stable

November 2013

Last

International

BBB-

Stable

November 2018

Risk Score Summary

Risk scores

Botswana Insurance Company Limited

   

Operating environment

14.25

Country risk score

9.25

Sector risk score

5.00

   

Business profile

1.00

Competitive position

1.50

Premium diversification

(0.50)

Management and governance

0.00

   

Financial profile

2.75

Earnings

1.00

Capitalisation

2.00

Liquidity

(0.25)

   

Comparative profile

0.00

Group support

0.00

Government support

0.00

Peer analysis

0.00

   

Total Score

18.00

Glossary

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.

Retention

The net amount of risk the ceding company keeps for its own account.

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.

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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to Botswana Insurance Company Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

Botswana 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 Botswana Insurance Company Limited and other reliable third parties to accord the credit ratings included:

  • The audited financial results up to 31 December 2018
  • Four years of comparative audited numbers to 31 December
  • Unaudited interim results up to 30 September 2019
  • Budgeted financial statements to 31 December 2019
  • Other related documents.
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