Johannesburg, 31 Oct 2014 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to Star Assurance Company Limited to A(GH); with the outlook accorded as Stable. The rating(s) are valid until August 2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Star Assurance Company Limited (“Star”) based on the following key criteria:
The rating recognises Star’s position as a top tier insurer in the Ghanaian market. Furthermore, the insurer’s penetration of personal lines provides for a competitive advantage, diversifying away from the industry’s congested commercial sector, while allowing for a greater degree of pricing power.
Profitability has been measured at strong levels, and represents an important component of the insurer’s rating. Star’s loss ratio has remained very low, and well contained, throughout the review period. The positive contribution of claims containment to underwriting profitability represents a core operational strength. Our view of strong earnings capacity is supported by healthy net surpluses reported throughout the review period. Partially offsetting this, underwriting volatility emanates from the elevated expense ratio.
The rating reflects the insurer’s moderately strong level of capital adequacy. Risk adjusted capitalisation is expected to support the rating going forward, with the anticipated rise in underwriting risk volumes offset by the reduction in exposure to financial assets, coupled with notable improvements in the quality of the receivables book.
Liquidity has been measured at moderately strong levels over the review period, and is expected to strengthen in F14. In this regard, the exiting from unlisted equity positions to the value of GHS9.5m in F14, and redeployment of funds into fixed deposits, represents a rating positive. In conjunction with the improvement in premium receivables, this also contributes favourably to the insurer’s asset quality profile.
Earnings diversification has been measured at fairly strong levels, and supports the insurer’s rating. Material reinsurance counterparties range between medium to fair credit quality, although increased participation by an unrated reinsurer is noted. Maximum net retention per risk and event are limited to a moderate level.
Upward movement on the rating could develop with a further strengthening in risk adjusted solvency margins, coupled with a sustained improvement in liquidity metrics and conservative investment profile. This must be accompanied by a stable underwriting track record and earnings diversification. A downgrade may arise if the insurer were to evidence a sustained deterioration in operating performance, a reduction in the risk adjusted solvency margin below GCR’s comfort level for this rating on a sustained basis, and/or a weakening in liquidity metrics.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (September 2009)
Claims paying ability: A(GH)
Last rating (July 2013)
Claims paying ability: A-(GH)
Sector Head: Insurance
Senior Analyst: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies, July 2014
Star 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.
Star Assurance Company 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 Star Assurance Company Limited with no contestation of the rating.
The information received from Star Assurance Company Limited and other reliable third parties to accord the credit rating(s) included the 2013 audited annual financial statements (plus four years of comparative numbers), latest Internal and/or external report to management, full year detailed budgeted financial statements, year to date management accounts to September 2014, the 2014 reinsurance 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 Star Assurance Company Limited’s rating to A(GH); Outlook Stable.