Announcements Insurance Rating Alerts

GCR revises NICOZDiamond Insurance Limited’s national scale financial strength rating to A+(ZW) on criteria change; Outlook Stable

Rating Action

Johannesburg, 5 November 2019 – GCR Ratings (“GCR”) has revised NICOZDiamond Insurance Limited’s (“NICOZDiamond”) national scale financial strength (formerly claims paying ability) rating to A+(ZW), Stable Outlook, from A-(ZW), Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
NICOZDiamond Insurance Limited Financial strength National A+(ZW) Stable Outlook

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

Rating Rationale

The rating of NICOZDiamond reflects the strengths and weaknesses of NICOZDiamond and its associates (“the group”), albeit with the group’s credit profile largely driven by NICOZDiamond, given its 94% contribution to the group’s revenue in FY18. NICOZDiamond evidences a healthy business profile, strong capitalisation and adequate earnings. These credit positives are partially diluted by comparatively limited premium diversification and intermediate liquidity metrics.

NICOZDiamond’s strong market position as one of the leading short-term insurers in Zimbabwe is considered a positive rating factor. The recent merger with TristarInsurance Company Limited, following the acquisition of NICOZDiamond by First Mutual Holdings Limited (“FMHL”), coupled with expanded distribution channels are expected to support an enhanced competitive position over the rating horizon. Nonetheless, the overall business profile assessment is moderated by comparatively limited premium diversification, with two lines of business contributing materially to gross premiums, and constrained geographic diversification.

The insurer’s financial profile is supported by strong risk adjusted capitalisation. While cognisance is taken of the reduction in the capital base post year-end as a result of the ongoing currency devaluation, positively, the group’s capitalisation is augmented by regional diversification through NICOZDiamond’s associates in Malawi and Mozambique, which somewhat upholds its resilience to uncertainties induced by exchange rate fluctuations. Notably, regional operations accounted for about 28% of the capital base at FY18, against limited risk exposures, materially elevating the insurer’s capital adequacy. Furthermore, earnings are viewed to be intermediate, supported by healthy underwriting profitability, balancing volatile investment income. In this respect, the group’s five-year underwriting margin and return on revenue equated to 3.2% and 3.8% respectively.

Liquidity is viewed to be intermediate, albeit a degree of moderation is noted given heightened allocation to value preserving assets, reflecting uncertainties in the operating environment. As such, cash and stressed assets covered net technical liabilities by 1.4x and operational requirements by 5.2 months at FY18 (FY17: 1.8x and 6.3 months).

Furthermore, NICOZDiamond’s rating benefits from integration and affiliation with the wider FMHL, given evidence of history of support and operational integration.

Outlook Statement

The Stable Outlook reflects expectations that the insurer will maintain a healthy market position and strong capitalisation over the outlook horizon, despite the ongoing challenges in the operating environment.

Rating Triggers

Potential for upward rating movement is viewed to be limited over the short term, reflecting a strained operating environment. However, an improvement in the wider group’s financial strength could raise the rating. Conversely, downward rating pressure may arise from a material deterioration in credit protection metrics.

Analytical Contacts

Primary analyst Yvonne Mujuru Sector Head: Insurance Ratings
Johannesburg, ZA YMujuru@GCRratings.com +27 11 784 1771
Secondary analyst Siyuan Lu Associate Analyst
Johannesburg, ZA SiyuanL@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
Jurisdictional Supplement for Criteria
GCR Country Risk Scores, June 2019
GCR Insurance Sector Risk Scores, July 2019

Ratings History

Rating class Review Rating scale Rating Outlook/Watch Date
Claims paying ability Initial National A-(ZW) Stable May 2009
Last National A-(ZW) Stable May 2018

Risk Score Summary

Risk scores NICOZDiamond Insurance Limited
Operating environment 3.25
Country risk score 0.00
Sector risk score 3.25
Business profile 0.50
Competitive position 1.25
Premium diversification (0.75)
 Management and governance 0.00
Financial profile 0.50
Earnings 0.00
Capitalisation 1.25
Liquidity (0.75)
Comparative profile 0.25
Group support 0.25
Government support 0.00
Peer analysis 0.00
Total Score 4.50

Glossary

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.
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.
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 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 NICOZDiamond 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.

NICOZDiamond 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 NICOZDiamond Insurance Limited and other reliable third parties to accord the credit rating 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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