Announcements Insurance Rating Alerts

GCR revises Swan General Ltd’s national and international scale financial strength ratings to A+(MU) and BB+ respectively on criteria change; Outlook Stable

Rating Action

Johannesburg, 20 December 2019 – GCR Ratings (“GCR”) has revised Swan General Ltd’s (“Swan General”) national scale financial strength (formerly claims paying ability) rating to A+(MU), Stable Outlook, from AA-(MU), Stable Outlook. GCR has also revised the international scale financial strength (formerly claims paying ability) rating to BB+, Stable Outlook, from BBB, Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Swan General Ltd Financial strength National A+(MU) Stable Outlook
International BB+ Stable Outlook

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

Rating Rationale

Swan General’s ratings reflects the insurer’s healthy market position in Mauritius, strong capitalisation and adequate earnings, which are partially diluted by comparatively limited premium diversification and intermediate liquidity.

The ratings are supported by the insurer’s strong capitalisation, reflecting a sizeable capital base which caters for the quantum of insurance risks and market exposure. Swan General’s liquidity is viewed to be intermediate, with stressed financial asset coverage of net technical liabilities and operational requirements registering at 1.5x and 9 months respectively at FY18. The assessment considers additional group facilities, which is expected to support the insurer’s short-term liquidity requirements. Nonetheless, the potential for sustained reduction in liquidity strength below expectations as a result of persistent earnings moderation is a key rating sensitivity, which may lead to a weakened financial profile.

Swan General’s strong market position as the leading domestic short-term insurer is considered a positive rating factor, with a market share of 32% at FY18. Looking ahead, the insurer’s entrenched market position and strong brand value is expected to provide sufficient growth impetus to defend its market leading position. Nonetheless, the overall business profile is moderated by comparatively limited premium diversification, with two lines of business contributing materially to net premiums and geographic concentration to Mauritius.

Earnings are largely a function of large and consistent investment returns partially offsetting intermediate underwriting performance. In this respect, the underwriting margin registered at 2.5% at FY18 (FY17: 2.3%), while return on revenue registered at a sound 17% in FY18 (FY17: 16%). Underwriting performance is expected to remain at similar levels over the outlook horizon, given the sustained elevated net claims ratio observed for the year to date.

Outlook Statement

The Stable Outlook reflects expectations that the insurer will maintain a healthy market position and strong capitalisation over the outlook horizon.

Rating Triggers

Positive rating movement could develop from a sustained improvement in the financial profile while maintaining a similar business profile. Conversely, downward rating action could follow a sustained deterioration in earnings, and/or a weakening in risk adjusted capitalisation below expectations.

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 Vinay Nagar Senior 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
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, June 2019
GCR Insurance Sector Risk Scores, December 2019

Ratings History

Rating class Review Rating scale Rating Outlook/Watch Date
Claims paying ability Initial National AA-(MU) Stable November 2013
Last National AA-(MU) Stable October 2018
Initial International BBB Stable November 2013
Last International BBB Stable October 2018

Risk Score Summary

Risk scores Swan General Ltd
Operating environment 15.25
Country risk score 9.25
Sector risk score 6.00
Business profile 0.75
Competitive position 1.50
Premium diversification (0.75)
Management and governance 0.00
Financial profile 2.00
Earnings 0.50
Capitalisation 1.50
Liquidity 0.00
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 18.00

Glossary

Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
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.
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.
Retention The net amount of risk the ceding company keeps for its own account.
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 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 Swan General Ltd. 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.

Swan General Ltd participated in the rating process via other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Swan General Ltd 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
  • Other related documents.
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