Announcements Insurance Rating Alerts

GCR revises Grand Re’s ratings to AA(ZW) and CCC+ on criteria change; Stable Outlook

Rating Action

Johannesburg, 13 November 2019 – GCR Ratings (“GCR”) has revised Grand Reinsurance Company (Private) Limited’s (“Grand Re”) national scale financial strength (formerly claims paying ability) rating to AA(ZW) from BBB+(ZW), with the Outlook accorded as Stable. GCR has also revised the international scale financial strength (formerly claims paying ability) rating to CCC+ from B, with the Outlook accorded as Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Grand Reinsurance Company (Private) Limited Financial strength National AA(ZW) Stable Outlook
International CCC+ Stable Outlook

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

Rating Rationale

The ratings for Grand Re reflect the reinsurer’s strong financial profile, supported by robust earnings, strong liquidity and strong capitalisation underpinned by financial flexibility from Masawara Holdings Mauritius Limited (“MHM”). The reinsurer’s business profile is somewhat constrained by limited geographic diversification with a significant portion of premiums derived locally.

Earnings is strong, supported by robust underwriting performance, and more recently an increase in investment returns. In this respect, the five year underwriting margin equated to 18% (FY18: 19%; FY17: 21%), while the investment return registered at 11% in FY18 (review period average: 4%). GCR views the demonstrated track record of underwriting profitability as indicative of earnings capacity going forward. Furthermore, the reinsurer’s retrocession panel aggregated credit strength is viewed to be moderately strong, while maximum net deductibles per risk and event are limited to conservative levels relative to capital.

Liquidity metrics are strong, as evidenced by stressed financial asset coverage of net technical provisions of 2.1x at FY18 (FY17: 2.4x), while the operational cash coverage equated to 12 months (FY17: 15 months). In GCR’s view, the liquidity profile is likely to remain within a similar range over the outlook horizon, supported by sound operating cash flows.

Risk adjusted capitalisation registered at strong levels. While note is taken of the material reduction in the capital base at 3Q FY19 to USD3m (FY18: USD10m), the reinsurer has flexibility offered by a financial guarantee from MHM. Accordingly, GCR expects capitalisation to remain strong over the outlook horizon.

The business profile is supported by the reinsurer’s moderately strong domestic market positioning, albeit tapered by limited participation in other jurisdictions it operates in. Furthermore, premium diversification is constrained by limited geographic diversification with most of the premiums derived from Zimbabwe (and the majority of assets domiciled locally). Grand Re also reflects concentration, with about 40% of gross premiums derived from a single source in FY18.

Outlook Statement

The Stable Outlook reflects expectations of the maintenance of strong capitalisation, healthy liquidity and robust earnings, while the business profile remains within a similar range.

Rating Triggers

Positive rating action may follow an improvement in earnings. Furthermore, a material improvement in liquidity and capitalisation may result in upward rating movement. Conversely, downward rating pressure may stem from a reduction in capitalisation and/or liquidity strength.

Analytical Contacts

Primary analyst Yvonne Mujuru Sector Head: Insurance Ratings
Johannesburg, ZA YMujuru@GCRratings.com +27 11 784 1771
Secondary analyst Linda Matavire Associate Analyst
Johannesburg, ZA LindaM@GCRratings.com +27 11 784 1771
Committee chair Godfrey Chingono Deputy Sector Head: Insurance Rating
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
Jurisdictional supplement to Criteria

Ratings History

Rating class Review Rating scale Rating Outlook/Watch Date
Claims paying ability Initial National BBB(ZW) Stable Outlook September 2009
Last National BBB+(ZW) Stable Outlook May 2018
Initial International B- Stable Outlook September 2009
Last International B Stable Outlook May 2018

Risk Score Summary

Risk scores Grand Reinsurance Company (Private) Limited
Operating environment 3.50
Country risk score 0.25
Sector risk score 3.25
Business profile (1.75)
Competitive position (0.75)
Premium diversification (1.00)
Management and governance 0.00
Financial profile 3.25
Earnings 1.00
Capitalisation 1.25
Liquidity 1.00
Comparative profile 0.00
Group support 0.00
Peer analysis 0.00
Total Score 5.00

Glossary

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.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Current; ordinarily less than one year.
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.
Statutory Required by or having to do with law or statute.
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.
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.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Current; ordinarily less than one year.
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.
Statutory Required by or having to do with law or statute.
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 Grand Reinsurance Company (Private) 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 ratings.

Grand Reinsurance Company (Private) 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 Grand Reinsurance Company (Private) 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, and
  • Other related documents.
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