Announcements

GCR upgrades Eagle Insurance Company Limited’s rating to BBB(ZW); Outlook Positive.

Johannesburg, 14 Oct 2014 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to Eagle Insurance Company Limited to BBB(ZW); with the outlook accorded as Positive. The rating(s) are valid until September 2015.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Eagle Insurance Company Limited (“Eagle”) based on the following key criteria:

Eagle evidences a notably strengthened market share, with high levels of uptake in select products enhancing positioning in key lines. This has been underpinned by group synergies and targeted alternative distribution channels. The continued deployment of niche health products is expected to cement positioning going forward. Eagle’s expansionary drive has been accompanied by a positive earnings stream, with the insurer having demonstrated an ability to manage the related portfolios to profitable growth. This has been achieved through loss ratio containment coupled with increasing delivery cost efficiencies. Profit potential is viewed to be solid over the medium term, supported by new offerings.

Cash flow generation has served to significantly enhance the insurer’s liquidity profile. Eagle has translated the profit stream into robust operating cash flows over the past two years, with cash coverage of technical provisions rising to 1.2x cover at FYE13. A stable asset allocation strategy is expected to retain liquidity at healthy levels going forward. The latter also contributes favourably to asset quality, which minimises capital exposure to market risk.

Capital adequacy has been measured at intermediate metrics, and is expected to remain at a fairly contained level over the rating horizon. Increased insurance risk volumes have seen the international solvency margin trending around the 50% mark over the past two years, declining to approximately 40% at FYE14 (the insurer’s internal minimum floor). Demonstrated capital and operational support from parent company FBC Holdings (“FBCH”) provides a source of financial flexibility going forward. Eagle’s ability to tap available resources aids in supporting the rating. A large proportion of cash holdings is held with FBCH subsidiaries, however, implying significant concentration risk.

Notwithstanding improvements, the highly uncertain domestic socio-political outlook, adverse macroeconomic fundamentals and low industry entry barriers present considerable operational challenges.

The positive outlook reflects GCR’s view for likely upward rating movement over the rating horizon. In this regard, sustained sound underwriting profitability, whilst attaining growth in tandem with capital appreciation, could exert upward pressure on the rating. In the medium term, enhanced capital adequacy, deeper market entrenchment and the reduction of counterparty exposures (in terms of cash placements) would be further positively viewed.

A marked deterioration in key credit protection measures, a material and sustained weakening in underwriting performance, and/or the adoption of a more aggressive investment strategy may be negatively viewed. The highly uncertain socio-political outlook is likely to exacerbate challenges within the operating climate, constraining capital inflows and economic growth. Should this deteriorate further, the rating ceiling of the insurance sector would likely be reviewed.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY

Initial rating (Aug/2012)
Claims paying ability: BB+(ZW)
Outlook: Stable

Last rating (Sep/2013)
Claims paying ability: BBB-(ZW)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

Committee Chairperson
Sheri Few
Senior Analyst: Insurance
(011) 784-1771
Few@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies, July 2014
Eagle Insurance Company Limited rating reports, 2012 – 2013.

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 Pvt Ltd 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/s has been disclosed to Eagle Insurance Pvt Ltd with no contestation of the rating.

The information received from Eagle Insurance Pvt Ltd and other reliable third parties to accord the credit rating(s) included the audited annual financial statements for 2013 (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements for 2014, year to date management accounts to June 2014, the current year reinsurance cover notes, and other related items and documentation related to the rating exercise.

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.

GCR upgrades Eagle Insurance Company Limited’s rating to BBB(ZW); Outlook Positive.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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