Johannesburg, 20 November 2019 – GCR Ratings (“GCR”) has revised CIC General Insurance Limited’s (“CIC General”) national scale financial strength (formerly claims ability) rating to A(KE), from A-(KE), with a Stable Outlook.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|CIC General Insurance Limited||Financial strength||National||A(KE)||Stable Outlook|
GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for CIC General was placed ‘Under Criteria Observation’. GCR finalised the review for CIC General under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for CIC General has been revised in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.
The national scale financial strength rating of CIC General reflects the strengths and weaknesses of CIC Insurance Group Limited (‘the group”), with the insurer being the core operating entity, accounting for 61% of group revenue in FY18. The group reflects a sound credit profile, supported by a strong market position and risk adjusted capitalisation. Furthermore, the earnings profile is considered intermediate, with consistent operating profits having been registered over the review period.
The business profile is considered sound, supported by a strong competitive position and a well-diversified portfolio. Competitive strength is a function of strong brand recognition and entrenched distribution networks in the local market. In this respect, the market share registered at 8% in FY18, tracking the insurer’s stand-alone market share. Revenue scale was largely supported by five lines of business, which measured at significant levels. The business profile is expected to be maintained within a similar range going forward.
Earnings are assessed within an intermediate range, with the five year operating margin equating to 10% in FY18 (FY17: 5%), while return on revenue averaged 6%. Despite benefitting from investment income, the core operating entity’s underwriting profitability remained weak, due to an elevated claims experience, with the net incurred loss ratio averaging 65% over the past three years. Going forward, the group’s earnings profile is expected to display some level of sensitivity to potential profit weakness in the core entity should the underlying causes remain unaddressed. However, risk adjusted capitalisation is likely to be maintained within a strong range, supported by sound internal capital generation from the long term business and well contained risk exposures.
Liquidity is viewed to be intermediate, with stressed financial asset coverage of net technical liabilities registering at 0.9x at FY18 (FY17: 1.0x), while operational cash coverage measured at 6.6 months (FY17: 7.2 months). GCR expects liquidity strength to be maintained over the rating horizon.
Positive rating action may follow a material improvement in earnings and strengthening in liquidity. Conversely, downward rating pressure may stem from persistent earnings strain, impacting negatively on capitalisation and liquidity.
|Johannesburg, ZA||TichaonaN@GCRratings.com||+27 11 784 1771|
|Secondary analyst||Linda Matavire||Insurance Associate|
|Johannesburg, ZA||LindaM@GCRratings.com||+27 11 784 1771|
|Committee chair||Godfrey Chingono||Deputy Sector Head: Insurance Ratings|
|Johannesburg, ZA||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 Ratings Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, June 2019|
|GCR Insurance Sector Risk Scores, November 2019|
CIC General Insurance Limited
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Claims paying ability||Initial||National||A(KE)||Stable||May 2013|
Risk Score Summary
|Risk score||CIC General Insurance Limited|
|Country risk score||4.25|
|Sector risk score||4.50|
|Management and governance||0.00|
|Accident||An unplanned event, unexpected and undesigned, which occurs suddenly and at a definite place.|
|Agency||An insurance sales office which is directed by an agent, manager, independent agent, or company manager.|
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|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.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its risks.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Catastrophe||An event, which causes a loss of extraordinary magnitude.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer.|
|Contract||An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the contract.|
|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.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|Equity||Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Experience||A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time period.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|Interest||Money paid for the use of money.|
|Interest Rate||The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.|
|Investment Income||The income generated by a company’s portfolio of investments.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|Loss||The happening of the event for which insurance pays.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|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.|
|Net Retention||The amount of insurance that a ceding company keeps for its own account and does not reinsure.|
|Operational Risk||The risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. This includes legal risk, but excludes strategic risk and reputational risk.|
|Personal Lines||Types of insurance, such as auto or home insurance, for individuals or families rather than for businesses or organisations.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.|
|Policyholder||The person in actual possession of an insurance policy.|
|Pool||An organisation of insurers or reinsurers through which particular types of risk are underwritten and premiums, losses and expenses are shared in agreed-upon amounts.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Reinstatement||The resumption of coverage under a policy, which has lapsed.|
|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. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.|
SALIENT POINTS OF ACCORDED RATINGS
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 rated entities, 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 CIC General Insurance 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.
CIC General Insurance 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 CIC General Insurance Limited and other reliable third parties to accord the credit rating included:
- Audited financial results as at 31 December 2018;
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements for 2019;
- Unaudited interim results to 30 September 2019;
- Reinsurance cover for 2019; and
- Other relevant documents.