Johannesburg, 09 Oct 2013 — Global Credit Ratings has today upgraded the national scale claims paying ability rating of Eagle Insurance Company (Private) Limited to BBB-(ZW); with the outlook accorded as Stable. The rating(s) are valid until 9/2014.
Global Credit Ratings has accorded the above credit rating(s) on Eagle Insurance Company (Private) Limited based on the following key criteria:
Incorporated in 1965 as a subsidiary of Star Eagle (UK), Eagle Insurance Company (Private) Limited (“Eagle”) became a Zurich subsidiary in 1995. Up to 2011, Zurich had significant managerial oversight of Eagle’s operations. Zurich, however, gradually relinquished control of Eagle to FBC Holdings (“FBCH”), who control 95% of the insurer (the remainder is owned by Eagle Pension Fund). FBCH is in turn the investment holding company of the FBC Group, which represents diverse financial interests that include a commercial bank, building society, reinsurance company and a stockbroking unit. FBCH’s major shareholders at FYE12 included the National Social Security Authority, with a 22% stake, Tirent Investments (Pvt) Limited (5%) and Cashgrant Investments (Pvt) Limited (5%). The ZSE-listed group had a market capitalisation of US$74m as at 19 September 2013.
The rating recognises Eagle’s demonstrated ability to consistently grow its premium base, thus gradually clawing back market share in the domestic insurance arena. This is underpinned by group synergies and robust alternative distribution channels. Note was also taken of demonstrated capital and operational support from parent company FBCH. On the back of sound operating cash flows, cash & equivalents were reported noticeably higher at FYE12, supportive of improved liquidity metrics. In this regard, claims cash cover rose to a review period high of 5.3 months in F12 (F11: 1.9 months). However, a large proportion (97%) of cash holdings is held with FBCH subsidiaries, implying significant concentration risk. In addition, strong premium growth, in conjunction with increased retention, has seen international solvency gradually recede over the review period. Accordingly, solvency is projected to decline further to 38% in F13, falling below management’s medium term comfort level of 40-60%. Positively, robust volumes, coupled with cost efficiencies, underpinned a review period high underwriting margin of 14% in F12, despite the high reliance on motor. A sound underwriting trajectory is expected to be maintained going forward, sustained by conservative underwriting guidelines. In this regard, Zurich’s continued operational oversight is viewed positively.
Upward rating pressure could emanate from sustained sound underwriting profitability, whilst attaining growth in tandem with capital appreciation (thus supporting sound solvency metrics). In addition, the reduction of unduly high counterparty exposures (in terms of cash placements) would be positively viewed. Downward rating pressure could result from a marked deterioration in key credit protection measures emanating from erratic underwriting performance and/or the adoption of a more aggressive investment strategy. 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.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Aug/2012)
Claims paying ability: BB+(ZW)
|Primary Analyst||Secondary Analyst|
|Patricia Zvarayi||Damien Dube|
|Senior Analyst||Junior Analyst|
|+27 11 784 1771||+27 11 784 1771|
|Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s criteria For Rating Short Term Insurance and Reinsurance Companies.
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.
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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 (Private) 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/s has been disclosed to Eagle Insurance Company (Private) Limited with no contestation of the rating.
The information received from Eagle Insurance Company (Private) Limited and other reliable third parties to accord the credit rating included the 2012 audited financial statements (plus three years of comparative numbers), full year detailed budgeted financial statements, unaudited management accounts to 30 June 2013, the current year reinsurance cover notes, debtors provisioning policy document, risk framework, reserving methodologies, capital management policy.