Johannesburg, 21 July 2015 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to Eagle Insurance Company Limited to A-(ZW), with the outlook accorded as Stable. The rating is valid until July 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Eagle Insurance Company Limited (“Eagle”) based on the following key criteria:
GCR has upgraded Eagle’s national scale claims paying ability on the back of a notable and sustained strengthening observed across competitive positioning, earnings capacity, liquidity and capitalisation.
Eagle’s market share has consistently strengthened over the review period and represents a key rating strength. Market share has been underpinned by high levels of uptake in select products enhancing positioning in key lines. The continued deployment of niche health products is expected to cement the insurer’s market position over the rating horizon.
Eagle continues to display very strong earnings capacity, with the recent 4-year underwriting margin registering at a robust 16%. This has been a function of the well contained loss ratio coupled with increasing delivery cost efficiencies. A sound underwriting trajectory is expected to be maintained going forward.
Liquidity metrics have been measured at strong levels, underpinned by robust operating cash generation. Key liquidity metrics have been maintained at levels well above prevailing industry norms, with the claims cash coverage at 14 months and cash coverage of technical liabilities at 1.8x at FYE14. A consistent investment strategy is expected to maintain this trend going forward. However, banking counterparty exposure is considered high, with 99% of liquid funds placed with two FBC Holdings subsidiaries.
Capitalisation has been measured at strong levels, with the international solvency margin consistently increasing over the past three years to 61% in FY14. The metric, however, is forecast to reduce to 48% in FY15 (a function of growth in retained underwriting risk). Nonetheless, GCR expects capital exposures to remain at a fairly contained level over the rating horizon.
Earnings by line of business are fairly well spread, with four classes each contributing in excess of 10% to the gross premium base. Reinsurance arrangements are placed with counterparties with high to mid-level national scale ratings, containing the reinsurance counterparty risk at a relatively low level. The maximum net deductible per risk and event is contained to a very conservative level. Additionally, GCR’s view of reserving sufficiency is positively impacted by the certification of reserve levels by a qualified actuary.
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
Eagle’s national scale rating currently matches GCR’s rating ceiling applicable for the Zimbabwean market. Conversely, a deterioration in key rating factors, such as a significant and protracted loss in market share, accompanied by a sustained deterioration in profitability, impinging on risk-based capital adequacy, may trigger a negative rating action. Furthermore, a downgrade could result from a marked deterioration in the credit protection metrics of the banking counterparties. Should the economic or socio-political outlook deteriorate further, the rating ceiling of the insurance sector may be reviewed.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (August 2012)|
|Claims paying ability: BB+(ZW)|
|Last rating (September 2014)|
|Claims paying ability: BBB(ZW)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Fidelis Masheka|
|Sector Head: Insurance Ratings||Junior Analyst|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014
Eagle rating reports, 2012-2014
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.
Eagle Insurance Company 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 Eagle Insurance Company Limited with no contestation of the rating.
The information received from Eagle Insurance Company Limited and other reliable third parties to accord the credit rating included:
- The 2014 audited financial statements
- 4 years of comparative audited numbers
- Unaudited interim results as per 31 March 2015
- Budgeted financial statements for 2015
- 2015 reinsurance cover notes
- Other related documents.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
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.|
|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