Johannesburg, 27 September 2016 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to CBZ Insurance (Private) Limited to BBB+(ZW) from BBB(ZW), with the outlook accorded as Stable. The rating is valid until September 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to CBZ Insurance (Private) Limited (“CBZ Insurance”) based on the following key criteria:
CBZ Insurance’s risk adjusted capitalisation has strengthened materially over the review period, underpinned by robust internal capital generation and more recently a capital injection (USD0.9m in FY15). In this regard, the capital base amounted to a higher USD4.2m at FYE15, supporting strong elevation in the international solvency margin to 86% at FYE15 (FYE14: 46%). Going forward, very strong capital generation from operations is likely to sustain risk adjusted capitalisation within a strong range.
Robust earnings capacity is largely a function of strong underwriting profitability. In this respect, the underwriting margin has averaged 16% over the review period. Reflecting similar drivers, ROaE has been measured at a very strong 26% over the corresponding period. This has been aided by metrics evidencing low to intermediate volatility, giving a level of earnings predictability. GCR expects earnings capacity to remain at strong levels over the rating horizon, given the insurer’s demonstrated track record.
The insurer’s liquidity position is viewed to be strong, underpinned by sound operating cash flow generation, and more recently the capital injection. In this respect, liquidity metrics improved, with the claims cash cover ratio equating to a very strong 32 months (FYE14: 20 months), while cash covered net technical liabilities by a high 2.1x. (FYE14: 1.2x). GCR expects liquidity metrics to remain within a strong range over the rating horizon, supported by sound cash generation, together with a conservative asset allocation.
The insurer’s business profile is viewed to be moderately strong, underpinned by fairly limited product risk, and an intermediate competitive position. In this respect, CBZ Insurance’s share of total industry short term gross premiums increased marginally to 4.5% in FY15 (FY14: 4.2%). Management expects to increase market share to 10% over the medium to long term. In GCR’s view, competitive positioning is likely to remain moderately strong, noting execution risks associated with strong growth targets.
Reinsurance counterparties evidence an intermediate level of aggregate strength. Exposure per risk and event was maintained at a conservative 1% of FYE15 capital.
GCR views country risk factors to be elevated, and a systematic rating consideration applicable to insurers. Operational challenges are likely to persist given the uncertain socio-political outlook, severe liquidity strain, reduction in banking sector stability and weak macroeconomic fundamentals.
CBZ Insurance’s rating could be upgraded on the back of an enhanced business profile coupled with an extended track record of elevated financial performance. Conversely, negative ratings pressure could arise from a sustained reduction in earnings capacity that reduces capitalisation and liquidity metrics. Should the economic or socio political outlook deteriorate further, the rating ceiling of the insurance sector may be reviewed.
|NATIONAL SCALE RATINGS HISTORY|
|Initial/ last rating (March 2016)|
|Claims paying ability: BBB(ZW)|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
CBZ Insurance (Private) Limited rating report, 2016
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.
CBZ Insurance (Private) Limited participated in the rating process via 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 CBZ Insurance (Private) Limited with no contestation of the rating.
The information received from CBZ Insurance (Private) Limited and other reliable third parties to accord the credit rating included:
- Audited financial results as per 31 December 2015
- Four years of comparative audited numbers
- Budgeted financial statements for 2016
- Actuarial valuation report for 31 December 2015
- 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 CBZ Insurance (Private) Limited’s rating to BBB+(ZW); Stable Outlook.