Johannesburg, 10th October 2019 – GCR Ratings (“GCR”) has revised Bryte Insurance Company Limited’s (“Bryte Insurance”) national scale financial strength (formerly claims paying ability) rating to A(ZA) from A+(ZA), Stable Outlook.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|Bryte Insurance Company Limited||Financial strength||National||A(ZA)||Stable Outlook|
GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for Bryte Insurance was placed ‘Under Criteria Observation’. GCR finalised the review for Bryte Insurance under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for Bryte Insurance has been reviewed in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.
The rating balances Bryte Insurance’s strong risk adjusted capitalisation and moderately strong liquidity with a weak earnings track record and intermediate business profile.
Bryte Insurance’s strong risk adjusted capitalisation is viewed to be ratings positive, with GCR CAR equating to around 1.7x at FY18. Risk adjusted capitalisation is expected to remain strong over the outlook horizon, supported by contained market risk and active capital management. Furthermore, the insurer’s liquidity is viewed to be moderately strong, with stressed financial asset coverage of net technical reserves equating to 1.8x at FY19, and operational coverage registering at close to 9 months. Liquidity metrics are expected to be maintained at similar levels going forward (supported by conservative investment allocation), although could be impacted by weaker than expected earnings.
The above factors are offset by Bryte Insurance’s weak earnings track record, with the five year average underwriting margin equating to -8% and the corresponding return on NEP registering at 4% (having been partly impacted by certain once-off costs related to restructuring). While performance improved in FY18 amidst broadly subdued claims experience, the assessment considered the impact of high value claims incurred in 1H F19. Accordingly, a sustained turnaround in underwriting profitability would need to be demonstrated in order to factor this into GCR’s forward looking view of earnings.
The rating considers the insurer’s intermediate competitive position, with a gross premium market share of around 3% and a relative market share of 2.5x. Similarly, the premium mix is viewed to be intermediate, with three lines of business representing more than 10% of net premiums (equating to between USD20m and USD112m in absolute terms). GCR’s overall assessment of Bryte Insurance’s business profile nevertheless factors in the poor earnings history, with the size and composition of the portfolio not having contributed to a commensurate level of underwriting performance and stability.
The Stable Outlook reflects expectations that solvency and liquidity will be sustained at moderately strong to strong levels. Earnings are expected to remain suppressed over the outlook horizon, with improved claims containment potentially positioning the insurer for a turnaround in performance over the medium to longer term.
Upward rating movement could follow a sustained turnaround in underwriting profitability. In contrast, the rating is sensitive to a reduction in liquidity and/or capitalisation.
|Primary analyst||Susan Hawthorne||Senior Insurance Analyst|
|Johannesburg, ZA||SusanH@GCRratings.com||+27 11 784 1771|
|Committee chair||Yvonne Mujuru||Sector Head: Insurance Ratings|
|Johannesburg, ZA||YMujuru@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, July 2019|
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Claims paying ability||Initial||National||AA(ZA)||Stable Outlook||July 2001|
|Last||National||A+(ZA)||Stable Outlook||August 2018|
Risk Score Summary
|Risk score||Bryte Insurance|
|Country risk score||7.50|
|Sector risk score||8.75|
|Management and governance||0.00|
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capitalisation||The provision of capital for a company, or the conversion of income or assets into capital.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Investment Income||The income generated by a company’s portfolio of investments.|
|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.|
|Net Profit||Trading/operating profits after deducting the expenses detailed in the profit and loss account such as interest, tax, depreciation, auditors’ fees and directors’ fees.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Reinsurance||The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued.|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|Retention||The net amount of risk the ceding company keeps for its own account.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Solvency||With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.|
|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 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 Bryte 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.
Bryte Insurance Company Limited participated in the rating process via telephone conference, 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 Bryte Insurance Company Limited and other reliable third parties to accord the credit rating included:
- Audited financial statements to 31 December 2018;
- Four years of comparative audited financial statements to 31 December;
- Full year budgeted financial statements to 31 December 2019;
- Unaudited management accounts to 30 June 2019;
- A summary of the 2019 reinsurance programme;
- Annual statutory returns to 31 December 2018;
- Other relevant documents