Announcements Insurance Rating Alerts

GCR revises OMICO’s national scale financial strength rating to AAA(ZW); Outlook Stable

Rating Action

Johannesburg, 13th September 2019 – GCR Ratings (“GCR”) has revised Old Mutual Insurance Company (Private) Limited’s (“OMICO”) national scale financial strength (formerly claims paying ability) rating to AAA(ZW), Stable Outlook, from A+(ZW), Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Old Mutual Insurance (Private) Limited Financial strength National AAA(ZW) Stable

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

Rating Rationale

OMICO’s national scale financial strength rating factors in the insurer’s healthy business profile, supported by strong market positioning, which is partially diluted by comparatively limited premium diversification. In this regard, OMICO’s share of total industry premiums registered at 15% in FY18 (FY17: 16%), supported by strong brand recognition and cross selling opportunities across the wider Old Mutual Group (“the group”). Through the cycle earnings are healthy, albeit note is taken of the reduction in underwriting profitability recorded in FY18 (FY18: -2%; review period average: 12%). Risk adjusted capitalisation is strong, supported by a large capital base and a conservative dividend policy, catering for the quantum of insurance risk and market exposure. The rating further takes into account OMICO’s comparatively high liquidity profile, with stressed investment asset coverage of net technical liabilities equating to 3.4x (FY17: 2.8x) and operational cash coverage registering at 3 months at FY18 (FY17: 4 months). While OMICO is viewed to be strategically important to the wider group, given brand alignment, access to operational and technical support and the insurer’s demonstrated track record of achieving profitable growth in line with group objectives, group support does not impact OMICO’s rating, owing to the country hurdle rate.

Outlook Statement

The Stable Outlook reflects expectations that the insurer will sustain strong risk adjusted capitalisation and market position, despite the volatility in the local economy, currency fluctuations and long-term political vulnerabilities.

Rating triggers

The national scale financial strength rating is at its ceiling. Conversely, downward rating pressure may arise from a persistently weaker underwriting performance, coupled with a weakening in key credit protection metrics.

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 Vinay Nagar Senior Credit 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
Jurisdictional supplement for Criteria
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, June 2019
GCR Insurance Sector Risk Scores, July 2019

Ratings History

Old Mutual Insurance Company (Private) Limited

Rating class Review Rating scale Rating class 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 OMICO
Operating environment 3.25
Country risk score 0.00
Sector risk score 3.25
Business profile 0.50
Competitive position 1.00
Premium diversification (0.50)
Management and governance 0.00
Financial profile 3.50
Earnings 1.00
Capitalisation 1.25
Liquidity 1.25
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Sub-total Score 7.25
Country hurdle rate 6.00
Total Score 6.00

Glossary

Accident An unplanned event, unexpected and un-designed, which occurs suddenly and at a definite place.
Accounting A process of recording, summarising, and allocating all items of income and expense of the company and analysing, verifying and reporting the results.
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.
Balance Sheet Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
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.
Captive Insurance Company A company owned solely or in large part by one or more non- insurance entities for the primary purpose of providing insurance coverage to the owner or owners.
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.
Facultative Facultative reinsurance means reinsurance of individual risks by offer and acceptance wherein the reinsurer retains the “faculty” to accept or reject each risk offered.
Financial Flexibility The company’s ability to access additional sources of capital funding.
Financial Statements Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.
Income Statement A summary of all the expenditure and income of a company over a set period.
International Scale Rating LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
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.
Preference Share Preference or preferred shares entitle a holder to a first claim on any dividend paid by the company before payment is made on ordinary shares. Such dividends are normally linked to an interest rate and not determined by company profits. Preference shares are normally repayable at par value in the event of liquidation. They do not usually carry voting or pre-emptive rights. Preference shares can be redeemable or perpetual.
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 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 Old Mutual Insurance Company (Private) 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.

Old Mutual Insurance Company (Private) 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 Old Mutual Insurance Company (Private) Limited and other reliable third parties to accord the credit rating included:

  • Audited financial statements as at 31 December 2018;
  • Four years of comparative audited financial statements to 31 December
  • Full year budgeted financial statements for 2019;
  • Reinsurance cover notes for 2019;
  • Other relevant documents.
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