Announcements Insurance Rating Alerts

GCR revises the outlook on NCA Re’s international scale financial strength rating to Stable after lowering the operating environment assessment.

Rating Action

Johannesburg, 30 September 2020 – GCR Ratings (“GCR”) has affirmed Nouvelle Compagnie Africaine de Réassurances’ (“NCA Re”) national scale financial strength rating of BB(CI), with a Negative Outlook. Furthermore, the international scale financial strength rating has been affirmed at CCC+, with the outlook revised to Stable.

Rated Entity Rating class Rating scale Rating Outlook / Watch
Nouvelle Compagnie Africaine de Réassurances Financial strength National BB(CI) Negative Outlook
Financial strength International CCC+ Stable Outlook

The rating action follows a revision of the country and insurance sector risk assessments of various jurisdictions, including the Conference Interafricaine des Marchés d’ Assurance (“CIMA”) Zone where the rated entity is domiciled and operates.

Country risk scores were updated in a market alert released on 27th May 2020. Click here to access the link. Meanwhile, latest updates on insurance sector risk scores were released on 15th July 2020. Click here to access link.

Combined, country and sector risk scores comprise the operating environment score, which is a key input into GCR’s ratings.

Rating rationale

Country risk scores of select jurisdictions, including Burkina Faso, Cameroon and Cote d’Ivoire, were lowered to reflect expectations of the adverse impact of COVID-19 related disruptions on economic productivity, as well as our view of the effectiveness of interventions made to stabilise the economy. Meanwhile, the insurance sector risk score revisions captured potential slow-down in industries’ growth and earnings pressures amidst exacerbated economic challenges, albeit insurance markets of the CIMA zone are likely to be resilient considering relatively low impact of the pandemic on revenue and claims.

The subsequent lowering of the operating environment scores has not translated to ratings downgrades. However, the outlook on the international scale financial strength rating revised to stable.

Note was taken of persistent elevated exposure to aged premium receivables which (if unaddressed) may result in negative rating action over the short to medium term. As such, GCR will continue to monitor the ratings, with a full review on NCA Re expected to be carried out by December 2020.

Outlook statement

The Negative Outlook on the national scale ratings reflects GCR’s view that the reinsurer’s risk adjusted capitalisation could remain subdue below 1.0x over the rating horizon, due to entrenched premium collection challenges.

Rating triggers

The ratings are unlikely to be upgraded over the short term, although the Outlook on the national scale could revert to ‘Stable’ on the back of an improvement in risk adjusted capitalisation to expected levels.

Movement in the international scale rating would require a movement in the Country or Sector risk scores, alongside the above.

Analytical contacts

Primary analyst Fleur Ngassa Analyst: Insurance Ratings
Johannesburg, ZA MarlaineN@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@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, May 2020
GCR Insurance Sector Risk Scores, July 2020

Ratings history

Nouvelle Compagnie Africaine de Réassurances

Rating class Review Rating scale Rating class Outlook/Watch Date
Claims paying ability Initial National BBB-(CI) Stable March 2017
International B Stable March 2017
Financial strength Last National BB(CI) Negative December 2019
International CCC+ Negative December 2019

Risk score summary

Rating components & factors Risk scores
Operating environment 5.75
Country risk score 3.25
Sector risk score 2.50
Business profile (0.25)
Competitive position (0.50)
Premium diversification 0.25
Management and governance 0.00
Financial profile 0.75
Earnings 0.50
Capitalisation 0.00
Liquidity 0.25
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total score 6.25

Glossary

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.
Reserve (1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.
Reserves A portion of funds allocated for an eventuality.
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.

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 ratings are based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings are an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to the rated entity. The ratings were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual 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 the entity and other reliable third parties to accord the credit rating included:

  • Latest audited financial statements;
  • Four years of comparative audited financial statements to 31 December;
  • Other relevant documents
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