Johannesburg, 9 May 2018 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to Grand Reinsurance Company (Private) Limited to BBB+(ZW) from BBB(ZW), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has upgraded the international scale claims paying ability rating assigned to Grand Reinsurance Company (Private) Limited to B from B-, with the outlook accorded as Stable. The ratings are valid until May 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Grand Reinsurance Company (Private) Limited (“Grand Re”) based on the following key criteria:
The upgrade reflects Grand Re’s improved liquidity profile stemming from a capital injection of USD2.9m in FY17, together with sustained earnings strength. GCR expects the reinsurer to maintain strengthened credit protection metrics over the medium term.
The liquidity profile improved to a strong level, with very strong liquidity metrics being partially offset by moderately weak aggregated banking counterparty strength. In this respect, cash covered net technical provisions by 2.2x, while the claims cash cover ratio equated to 37 months at FY17 (FY16: 1.4x and 28 months respectively). Nonetheless, the majority of funds are placed either with unrated entities or financial institutions with moderately weak ratings. The liquidity profile is likely to remain at similar levels over the rating horizon.
Earnings capacity is viewed to be strong, supported by robust underwriting profitability, albeit with limited upside from investment returns. In this regard, the three year aggregated underwriting margin equated to 20% (FY17: 21%), although the investment yield averaged 3% over the last three years. GCR views the reinsurer’s demonstrated track record of underwriting profitability as indicative of earnings capacity going forward. Furthermore, the reinsurer’s retrocession panel aggregated credit strength is viewed to be moderately strong, whilst maximum net deductibles per risk and event are limited to conservative levels relative to capital.
Capital amounted to a higher USD8.6m at FY17 (FY16: USD5.4m), supported by the capital injection and strong internal capital generation. Accordingly, risk adjusted capitalisation measured within a strong range. Nonetheless, in absolute terms the scale of the capital base is viewed to be intermediate relative to regional competitors (taking the reinsurer’s regional diversification efforts into account). GCR expects risk adjusted capitalisation to remain strong over the outlook horizon, supported by limited market exposure and relatively well contained insurance risks.
The reinsurer’s business profile improved to a moderately strong range, supported by enhanced competitive positioning and fairly diversified earnings. Grand Re’s estimated share of total industry reinsurance premiums equated to a higher 15% in FY17 (FY16: 13%), supported by increased brand equity awareness. Enhanced market share has been targeted going forward, primarily through increased regional diversification, enhanced brand recognition (given the association with Sanlam) and improved distribution channels.
GCR views country risk factors to be elevated, and a systematic rating consideration applicable to reinsurers. Operational challenges are likely to persist over the rating horizon, albeit with positive changes in the socio-political outlook and macroeconomic fundamentals possible over the medium term, should the political situation stabilise. Furthermore, the international scale rating is heavily constrained by sovereign risk, given that the bulk of assets are domiciled in Zimbabwe. While the country has no sovereign rating, it has previously defaulted on payments to international financial institutions.
Upward rating movement could to stem from continued positive earnings, coupled with sustained strengthening in capitalisation and/or liquidity. Conversely, negative rating sensitivities pertain primarily to reductions in earnings capacity, capitalisation and liquidity.
NATIONAL SCALE RATINGS HISTORY
INTERNATIONAL SCALE RATING HISTORY
|Initial rating (September 2009)||Initial rating (September 2009)|
|Claims paying ability: BBB(ZW)||Claims paying ability: B-|
|Outlook: Stable||Outlook: Stable|
|Last rating (May 2017)||Last rating (May 2017)|
|Claims paying ability: BBB(ZW)||Claims paying ability: B-|
|Outlook: Stable||Outlook: Stable|
Sector Head: Insurance Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
Grand Reinsurance Company (Private) Limited rating reports, 2009-2017
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 ratings was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Grand Reinsurance 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 ratings have been disclosed to Grand Reinsurance Company (Private) Limited with no contestation of the ratings.
The information received from Grand Reinsurance Company (Private) Limited and other reliable third parties to accord the credit rating included:
- The 2017 unaudited annual financial statements Four years of comparative audited numbers
- Unaudited interim results to 28 February 2018
- Budgeted financial statements for 2018
- 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.
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capitalisation||The provision of capital for a company, or the conversion of income or assets into capital.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its risks.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|International Scale Rating (“ISR”)||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liquidity||The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short Term||Current; ordinarily less than one year.|
|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.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a detailed glossary of terms utilised please click here
GCR upgrades Grand Reinsurance Company (Private) Limited’s rating to BBB+(ZW); Outlook Stable.