Johannesburg, 18 Jun 2014 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to FMRe Property & Casualty (Private) Limited to BBB(ZW); with the outlook accorded as Stable. The rating(s) are valid until 05/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to FMRe Property & Casualty (Private) Limited (“FMRe”) based on the following key criteria:
FMRe is the second largest non-life reinsurer in Zimbabwe, focussing on the full spectrum of non-life business lines. The reinsurer is a 100% owned subsidiary of First Mutual Holdings Limited (“FMHL”, formerly Afre), a financial services investment holding company with diverse interests in financial services and property (US$24.7m market capitalisation as at 6 June 2014). Following corporate activity during 2012, the ultimate holding company of the reinsurer is now the National Social Security Authority (“NSSA”), which holds a 51% stake in FMHL. The bulk of the remaining shares in FMHL are held publicly.
The upgrade reflects FMRe’s improved underwriting profitability, which was achieved on the back of a refinement in the underwriting criteria coupled with cost rationalisation measures, underpinning capital accumulation and solvency. Going forward, the continued attainment of cost efficiencies is considered essential to ensure margin stability. The rating further takes into account the ultimate majority shareholding by NSSA in the business and demonstrated capital support displayed by this entity of late.
The international solvency margin continues to trend at a moderate level relative to industry norms, as capital accumulation is restrained by a heightened degree of earnings volatility. For F14, solvency (unadjusted) is projected to remain at an intermediate level of 46%. Ongoing efforts to de-risk the investment portfolio are positively viewed, with select listed equities liquidated at the benefit of enhancing liquidity. Attesting to this approach, key liquidity metrics have been maintained at adequate levels in F13 and are expected to remain sound over the short to medium term. However, some degree of balance sheet risk persists amidst sizeable intercompany balances and doubtful receivables (at a net US$0.5m or 8% of FYE13 capital).
Despite select programme adjustments for 2014, the maximum net retention per risk on XoL remains moderately elevated relative to capital (at 3.4% at FYE13), whilst the retrocession panel includes a number of players with intermediate credit ratings. Notwithstanding recent improvements, the highly uncertain socio-political outlook, adverse macroeconomic fundamentals and low industry entry barriers continue to present considerable operational challenges.
Upward movement of the rating could develop on the back of sustained underwriting profit generation, coupled with a strengthening in solvency metrics. Conversely, downward rating pressure may emanate from a reduction in the solvency margin below a level supportive of the rating band. Furthermore, the rating may be downgraded following 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 may be reviewed.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (May/2009)
Claims paying ability: BBB+(ZW)
Last rating (May/2013)
Claims paying ability: BBB-(ZW)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013).
FMRe rating reports, 2009-2013.
RATING LIMITATIONS AND DISCLAIMERS
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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.
FMRe Property & Casualty (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 FMRe Property & Casualty (Private) Limited with no contestation of the rating.
The information received from FMRe Property & Casualty (Private) Limited and other reliable third parties to accord the credit rating(s) included the latest available 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, abbreviated year to date accounts to March 2014, the current year retrocession cover notes and other 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 FMRe Property & Casualty (Private) Limited’s rating to BBB(ZW); Outlook Stable.