Announcements

GCR upgrades Activa Assurances Limited’s rating to A+(CM); Stable Outlook.

Johannesburg, 02 August 2016 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to Activa Assurances Limited to A+(CM) from A(CM), with the outlook accorded as Stable. The rating is valid until July 2017.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Activa Assurances Limited (“Activa Cameroon”) based on the following key criteria:

Activa Cameroon’s upgrade reflects the sustained strengthening in risk adjusted capitalisation, earnings capacity and liquidity metrics over the review period.

Earnings capacity remained very strong, supported by robust underwriting profitability. In this respect, the five year average underwriting margin equated to a strong 15%. This is largely a function of a well contained loss ratio (three year average: 36%), with the insurer recording very strong corresponding underwriting results (FY15: 17%; three year average: 19%). Furthermore, the insurer has continued to register very strong profit competitiveness at the gross level, presenting further opportunities for earnings enhancement should retention levels increase. In this respect, GCR expects the insurer’s net profitability to remain at strong levels over the rating horizon.

The insurer reflects strong risk adjusted capitalisation, underpinned by a sizeable capital base catering for the high quantum of asset and underwriting risks. The adjusted international solvency margin strengthened further to 151% at FYE15 (FYE14: 107%). Strong capital generation from operations is expected to support risk adjusted capital adequacy within a strong range over the rating horizon, albeit partially offset by high levels of dividends (80% of net profits). Management has indicated that part of the dividends (40%) are retained at group level to hedge against currency risk.

Liquidity metrics measured at strengthened levels, with adjusted cash coverage of net technical liabilities equating to a strong 0.8x at FYE15, compared to 0.4x at the start of the review period. Similarly, the cash cover of average monthly claims adjusts to a very strong 23 months, compared to 12 months at FYE12. Going forward, liquidity metrics are expected to be maintained at strong levels, underpinned by management’s asset allocation philosophy.

Activa Cameroon is the third largest player in the domestic short term insurance industry, recording an average 13% of total short term industry gross premiums over the past two years. Notably, the insurer continues to strengthen its brand equity through continued participation of reputable shareholders at strategy level, facilitating stronger corporate relationships and an edge in development focused insurance solutions. Going forward, the insurer expects to defend its market share through increased penetration of the retail market.

Exposure to high risk assets is viewed to have been maintained at a moderately high level, compared to the very high levels at the beginning of the review period. While the insurer has continued to manage aged debtors in line with FYE14 levels, management has indicated concerted efforts to reduce related party transactions exposure materially by FYE16.  This, coupled with an investment strategy geared towards cash investments, is expected to materially dilute high risk assets over the rating horizon.

The reinsurance programme structure introduces a moderate degree of counterparty concentration and credit risk. Cognisance is, however, taken of the moderate credit quality of the underlying reinsurers in the Globus Re (a captive reinsurer) reinsurance programme and the very conservative maximum retention per risk and event (0.3% of capital).

Activa Cameroon’s rating could be upgraded on the back of a medium term enhancement in the insurer’s business profile (by way of increased market share and improved earnings profile), and/or further sustainable improvements in asset quality and liquidity metrics. Conversely, negative ratings pressure could arise from a weakening in asset quality and/ or deterioration in liquidity metrics and risk adjusted capitalisation. A sustained reduction in earnings capacity may also result in a downgrade rating action.

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (September 2009)    
Claims paying ability: A(CM)    
Outlook: Stable    
     
Last rating (July 2015)    
Claims paying ability: A(CM)    
Outlook: Positive    

ANALYTICAL CONTACTS

Primary Analyst    
Godfrey Chingono    
Credit Analyst    
(011) 784-1771    
godfreyc@globalratings.net    

   
Committee Chairperson    
Marc Chadwick    
Sector Head: Insurance Ratings    
(011) 784-1771    
chadwick@globalratings.net

   

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2015

Activa Cameroon rating reports, 2009-2015

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating 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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Activa Assurances Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating has been disclosed to Activa Assurances Limited with no contestation of the rating.

The information received from Activa Assurances Limited and other reliable third parties to accord the credit rating included:

  • Audited financial results as per 31 December 2015
  • 4 years of comparative audited numbers
  • Budgeted financial statements for 2016
  • Statutory returns to 31 December 2015
  • The current year reinsurance cover notes
  • Other non-public statistical information

The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY

Assets The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’
Balance Sheet An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.
Capacity The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.
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 to agents and brokers.
Insurer The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.
Interest Money paid for the use of money.
Liquidity The ability of an insurer to convert its assets into cash to pay claims if necessary.
Loss Ratio The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.
Premium The price of insurance protection for a specified risk for a specified period of time.
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.
Reserve An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.
Retention The net amount of risk the ceding company keeps for its own account
Risk Uncertainty as to the outcome of an event when two or more possibilities exist.
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.
Statutory Required by or having to do with law or statute.
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.

For a detailed glossary of terms please click here

GCR upgrades Activa Assurances Limited’s rating to A+(CM); Stable Outlook.

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