Johannesburg, 15 May 2018 — Global Credit Ratings has today upgraded the national scale financial strength rating assigned to CBZ Life (Private) Limited to A-(ZW) from BBB+(ZW), with the outlook accorded as Stable. The rating is valid until May 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to CBZ Life (Private) Limited (“CBZ Life”) based on the following key criteria:
The upgrade reflects CBZ Life’s sustained strengthening in credit protection metrics, offsetting risks associated with a limited business profile. In this respect, the insurer’s capital base amounted to a higher USD18m at FY17 (FY16: USD15m), which compares favourably with USD6m at the start of the review period. This, together with a low quantum of underwriting risks and limited market exposure, has supported very strong risk adjusted capital adequacy. Accordingly, the international solvency margin equated to a very high 184% at FY17 (FY16: 168%), compared to 80% at FY13. In GCR’s view, capital adequacy may moderate, albeit remain rating adequate, on the back of anticipated increases in market exposure.
Similarly, the insurer’s liquidity profile continued to strengthen over the review period, supported by strong internal cash generation and conservative asset allocation. As such, cash coverage of net technical liabilities and investment coverage of policyholder liabilities equated to a very high 5.1x and 7.0x respectively at FY17 (FY16: 5.1x and 5.6x), which compares very well with 4.6x and 4.6x respectively at FY13. Asset liability matching is viewed to be very strong, supported by the large quantum of surplus liquid assets and the short term nature of predominate liabilities.
Sound and consistent earnings over the review period support a strong assessment of earnings capacity. The five year average operating margin equated to 32% translating into a solid return on average equity of 39%, with key drivers evidencing a satisfactory level of stability. In particular, a well contained ratio of total benefits to total income on the core portfolio provides ample headroom for the sustenance of strong earnings. Notwithstanding earnings risk introduced by new products, GCR expects earnings capacity to be maintained within a similar range over the rating horizon, with further support possible from scale efficiencies as the business profile further develops.
CBZ Life exhibits an intermediate business profile, being a function of a limited operating track record and a restrictive market structure. As such the insurer’s business mix is supported by two short term products (funeral and credit life), which underpinned an estimated market share of 2.9% of long term industry gross premiums in FY17. This relative weakness continues to serve as a rating constraint. In this regard, ongoing efforts to grow whole life and pension products would provide a measure of management’s strategic execution in new areas as well as the strength of the group’s brand and distribution network against more entrenched players. Country risk factors are viewed to be elevated, and a systematic rating consideration applicable to insurers. Operational challenges are likely to persist over the rating horizon, albeit with positive changes in the socio-political outlook and macroeconomic fundamentals possible over the medium term, should the political situation stabilise.
Reinsurers of sound aggregate strength participate on CBZ Life’s panel, whilst the maximum deductible is limited to a conservative level relative to capital.
The rating currently matches the national scale ceiling applicable for the Zimbabwean market. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. Downward rating pressure may arise from a material deterioration in asset quality or liquidity.
NATIONAL SCALE RATINGS HISTORY
|Initial rating (March 2016)|
|Financial Strength: BBB+(ZW)|
|Last rating (May 2017)|
|Financial Strength: BBB+(ZW)|
|Primary analyst||Secondary analyst|
|Godfrey Chingono||Linda Matavire|
|Senior Credit Analyst||Junior Credit Analyst|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Long Term Insurance Companies, updated May 2018
CBZ Life rating reports, 2016-2017
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 Life (Private) 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 credit rating has been disclosed to CBZ Life (Private) Limited with no contestation of the rating.
The information received from CBZ Life (Private) Limited and other reliable third parties to accord the credit rating included:
- Audited financial statements to December 2017
- Four years of comparative financial statements
- Unaudited interim results as at March 2018
- Budgeted financial statements for 2018
- Actuarial report for 2017
- 2018 reinsurance cover notes
- Other related documents.
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||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Benefits||Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.|
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capitalisation||The provision of capital for a company, or the conversion of income or assets into capital.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Country Risk||The range of risks emerging from the political, legal, economic and social conditions of a country that have adverse consequences affecting investors and creditors with exposure to the country, and may also include negative effects on financial institutions and borrowers in the country.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Deductible||The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Equity||Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|International Solvency Margin||Measures the ability to cover current year’s written premiums using shareholder’s funds.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|Liquid Assets||Assets, generally of a short term, that can be converted into cash.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|Operating Margin||Measures the efficiency of profit generation from investments and underwriting.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|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.|
|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 assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade.|
For a detailed glossary of terms please click here
GCR upgrades CBZ Life (Private) Limited’s rating to A-(ZW); Outlook Stable.