Announcements Insurance Rating Alerts

GCR upgrades Swan Reinsurance PCC – Liberty Health Cell’s national scale financial strength rating to BBB+(KE) from BBB-(KE) on group support; Outlook Stable

Rating action

Ebene, 28 September 2021 – GCR Ratings (“GCR”) has upgraded Swan Reinsurance PCC – Liberty Health Cell’s (“Liberty Health Cell”) national scale financial strength rating to BBB+(KE) from BBB-(KE); Outlook Stable.

Rated entity / Issue Rating class Rating scale Rating Outlook/Watch
Swan Reinsurance PCC – Liberty Health Cell Financial strength National BBB+(KE) Stable Outlook

Rating rationale

The rating upgrade follows receipt of written confirmation of an inter-group loan facility provided by Liberty Holdings Limited (“LHL”) to Liberty Health (Pty) Ltd (“Liberty Health”), along with Liberty Health’s written undertaking to provide Liberty Health Cell with liquidity from this group loan facility if required. We believe this reinforces implied support from LHL, along with Liberty Health Cell’s history of strong performance and high levels of operational integration within the group.

The rating nevertheless remains constrained by Liberty Health Cell’s exposure to higher risk operating environments, with particularly high premium exposure to Mozambique and a fairly small portion of assets domiciled in Mauritius.

Competitive position is credit neutral. The cell’s strong market shares in Mozambique and Malawi are offset by limited market shares in other core markets. However, we believe that the cell benefits from a strong product franchise and relatively captive sources of revenue, given the relationship with LHL, an established partnership network and access to intellectual property. The overall business profile is nevertheless credit negative, given concentration to the accident line of business, as well as to certain cedants and underlying policyholders.

The cell reflected a weakening in earnings in 1H F21, with the underwriting margin registering at 8% versus 13% in 1H F20 (FY20: 18%). However, this was largely due to timing differences and once-off items, and earnings are expected to be more normalised in 2H F21. In this regard, we expect the low operating expense base to continue to support sound net margins within the 12% to 16% range, although the assessment could be lowered if weaker underwriting performance persists over the next 12 to 18 months.

The GCR Capital Adequacy Ratio (“CAR”) increased to around 1.8x at 1H F21 from an adjusted 1.6x at FY20 and is expected to range between 1.5x and 2x over the outlook horizon depending on the level of dividend extraction. The relationship with Liberty group and the contractual solvency obligation of Liberty Health are seen to provide additional financial flexibility in a stressed scenario, contributing to our view of capitalisation strength. Coverage of net technical liabilities is considered strong, despite a reduction to 2.2x at 1H F21 (FY20: 2.9x) following an increase in claims provisions. We expect liquidity metrics to improve and be closer to 3x by year-end on the back of positive cash flow generation. Both capitalisation and liquidity strengths are expected to be sustained by sound earnings, although these metrics are sensitive to further dividend distributions.

Outlook statement

The Stable Outlook reflects expectations that the financial profile will remain strong, supported by sound earnings and cash flow generation. The business profile is likely to remain credit negative given limited market shares in most jurisdictions of operation, inherent product concentration and high single policyholder / cedant exposures.

Rating triggers

The rating could be upgraded if GCR CAR strengthens and is maintained above 2x and earnings remain sound. On the other hand, negative rating action could result if earnings remain suppressed over a prolonged period, or if capitalisation and liquidity reduce below expected levels.

Analytical contacts

Primary analyst Susan Hawthorne Senior Analyst: Insurance Ratings
Johannesburg, ZA SusanH@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771
Registered Mauritius Office
Level 6, GFin Tower, 42 Hotel Street, Cybercity, Ebene, Mauritius, 72201

Related criteria and research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Insurance Companies, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, August 2021
GCR Insurance Sector Risk Scores, April 2021

Ratings history

Swan Reinsurance PCC – Liberty Health Cell

Rating class Review Rating scale Private Rating Outlook/Watch Date
Financial strength Initial/last National BBB-(KE) Stable Outlook July 2021

Risk score summary

Rating components and factors Risk scores
Operating environment 5.00
Country risk score 2.50
Sector risk score 2.50
Business profile (1.75)
Competitive position 0.00
Premium diversification (1.75)
Management and governance 0.00
Financial profile 3.75
Earnings 1.00
Capitalisation 1.75
Liquidity 1.00
Comparative profile 1.00
Group support 1.00
Government support 0.00
Peer analysis 0.00
Total score 8.00

Glossary

Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
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.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Technical Liabilities The sum of Net UPR and Net OCR IBNR.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
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.
Upgrade The rating has been raised on its specific scale.

Salient Points of Accorded Rating

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating is based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating is an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to the rated entity. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The information received from the entity to accord the credit rating included:

  • Audited financial statements to 31 December 2020
  • Three years of comparative audited and unaudited numbers to 31 December
  • Full year budgeted financial accounts to 31 December 2021
  • Unaudited interim results to 30 June 2021
  • Other relevant documents
image_pdf


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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2022 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.