Announcements

GCR upgrades General Alliance Insurance Limited’s rating to AA-(MW); Outlook Stable.

Johannesburg, 26 August 2016 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to General Alliance Insurance Limited to AA-(MW), with the outlook accorded as Stable. The rating is valid until August 2017.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to General Alliance Insurance Limited (“GA Malawi”) based on the following key criteria:

GA Malawi’s rating has been upgraded following a sustained strengthening in capitalisation, which is expected to further cement balance sheet strength going forward. The international solvency margin continued on an upward trajectory, measuring at 122% at FYE15 (FYE14: 95%). Solvency metrics have been supported by robust capital generation, with capital rising by a three year CAGR of 40%, amounting to MWK3.5bn at FYE15. Continued capital accumulation is expected to see capitalisation metrics measuring at very high levels over the rating horizon.

GA Malawi’s earnings capacity is viewed to be very strong. Underwriting and net margins have continued to register at robust levels, with the five year average underwriting margin equating to 23%. This has been underpinned by technical expense containment, and supported by operating cost controls. Earnings are fairly well diversified across products. Earnings capacity is expected to persist at very strong levels over the rating horizon.

GA Malawi has produced strong liquidity, which is expected to be sustained going forward. This has been facilitated by the insurer’s high cash flow generation, coupled with a fairly conservative asset allocation strategy. As such, cash coverage of technical provisions equated to a stable 1.2x at FYE15, while cash coverage of average monthly claims equated to 39 months (FYE14: 22 months). GA Malawi’s investment portfolio exhibits a fairly contained (and lowered) level of risk, with the value of listed equities corresponding to 31% of capital at FYE15 (FYE14: 40%). The listed nature of the bulk of financial assets serves to supplement liquidity somewhat.

GA Malawi is an established player in the domestic non-life insurance market, with a 13% market share in FY15. Participation on sizeable corporate risks continues to enhance the insurer’s business profile, entrenching market share. Comparative performance further supports the insurer’s competitive profile, with underwriting margins surpassing those of peers and the industry. Material reinsurance counterparties evidence a strong aggregate level of counterparty strength, whilst net deductibles per risk and event are limited to levels viewed by GCR to be conservative.

The rating currently matches the national scale claims paying ability rating ceiling applicable to entities operating within the Malawian short term insurance industry. In this regard, positive rating action may follow an assessment of country and industry risk factors. Downward rating sensitivities pertain primarily to a reduction in capital strength, liquidity and earnings capacity.

NATIONAL SCALE RATINGS HISTORY
 
Initial rating (May 2008)
Claims paying ability: A+(MW)
Outlook: Stable
 
Last rating (August 2015)
Claims paying ability: A+(MW)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst   Secondary Analyst
Catherine Zimba   Zwivhuya Mukosi
Credit Analyst   Junior Credit Analyst
(011) 784-1771   (011) 784-1771
catherinez@globalratings.net   zwivhuyam@globalratings.net
     
Committee Chairperson    
Marc Chadwick    
Sector Head: Insurance Ratings    
(011) 784-1771    
chadwick@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2016

General Alliance Insurance Limited rating reports, 2008-2015

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.

General Alliance Insurance 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 General Alliance Insurance Limited with no contestation of the rating.

The information received from General Alliance Insurance Limited and other reliable third parties to accord the credit rating included:

  • The 2015 audited annual financial statements 4 years of comparative audited numbers
  • Unaudited interim results as at 30 June 2016
  • Budgeted financial statements for 2016
  • 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 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. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.
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 utilised in this announcement, please click here

GCR upgrades General Alliance Insurance Limited’s rating to AA-(MW); Outlook Stable.

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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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