Announcements Insurance Rating Alerts

GCR revises Zimnat Lion Insurance Company Limited’s national scale financial strength rating to A+(ZW); Outlook Stable

Rating Action

Johannesburg, 11 September 2019 – GCR has revised Zimnat Lion Insurance Company Limited’s (“Zimnat Lion”) 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
Zimnat Lion Insurance Company 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 Zimnat Lion was placed ‘Under Criteria Observation’. GCR finalised the review for Zimnat Lion under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for Zimnat Lion has been revised in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.

Rating Rationale

Zimnat Lion’s national scale financial strength rating reflects support from a sound business profile and a disciplined approach to underwriting and capital management. Offsetting these strengths is liquidity moderation on the back of value preserving strategies, reflecting uncertainties presented by the operating environment. The insurer has maintained strong brand recognition and evidenced healthy growth momentum over the review period, registering an increased market share of 15% in FY18 (FY17: 13%), underpinned by comparatively high risk uptake in key lines of business. While the insurer has a comparatively healthy capital base, note is taken of the drastic reduction post year-end, thus moderating the capital assessment. Earnings have been managed within a sound range, with the five-year underwriting margin and return on revenue equating to 9.1% and 15.9% respectively, albeit with pressures expected to increase due to a systematic elevation in claims in FY18 and the recent interim period. Nonetheless, the insurer’s strategic decision to convert the majority of business to USD for a material part of FY19 is expected to limit earnings compression. On the other hand, liquidity moderated on the back of heightened allocation towards value preserving assets, with stressed financial asset coverage of net technical liabilities equating to 1.5x at FY18 (FY17: 1.8x), while operational cash coverage regressed to 6 months (FY17: 8 months).

Outlook Statement

The Stable Outlook reflects expectations that the insurer will maintain strong risk adjusted capitalisation and market position, despite the ongoing challenges in the operating environment.

Rating triggers

Sustained strengthening in earnings may result in upward rating movement over the medium term. This would need to be supported by risk adjusted capitalisation and liquidity measuring within a strong range. Conversely, downward rating pressure may arise from continued erosion of the capital base, coupled with a weakening in liquidity.

Analytical Contacts

Primary analyst Godfrey Chingono Deputy Sector Head: Insurance Ratings
Johannesburg, ZA GodfreyC@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
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

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 Zimnat Lion
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 0.75
Earnings 0.50
Capitalisation 0.75
Liquidity (0.50)
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 4.50

Glossary

Premium The price of insurance protection for a specified risk for a specified period of time.
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.
Senior A security that has a higher repayment priority than junior securities.
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.
Upgrade The rating has been raised on its specific scale.

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 ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to Zimnat Lion Insurance Company 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.

Zimnat Lion Insurance Company 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 Zimnat Lion Insurance Company Limited and other reliable third parties to accord the credit ratings included:

  • The audited financial results to 31 Dec 2018
  • Four years of comparative audited numbers
  • Unaudited interim results up to 30 June 2019
  • Budgeted financial statements for 2019
  • Reinsurance cover notes for 2019
  • Statutory returns to 31 March 2019, and
  • Other related documents.


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