Announcements Insurance Rating Alerts

GCR upgrades Zimnat Lion’s Zimbabwean national scale financial strength rating to AA+(ZW) to reflect recently issued parental guarantee; Outlook Stable

Rating action

Johannesburg, 04 November 2020 – GCR Ratings (“GCR”) has upgraded Zimnat Lion Insurance Company Limited’s (“Zimnat Lion”) national scale financial strength rating to AA+(ZW) from A+(ZW), with the outlook accorded as Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Zimnat Lion Insurance Company Limited Financial strength National AA+(ZW) Stable Outlook

Rating rationale

The upgrade of Zimnat Lion’s rating reflects a credit enhancement on the insurer’s stand-alone credit profile from the policyholder guarantee issued by the parent; Masawara Holdings Mauritius Limited (“MHM”, ‘guarantor’). As a result, the financial strength rating on Zimnat Lion will solely reflect the creditworthiness of the guarantor going forward.

In 2H 20 MHM issued an unconditional, irrevocable guarantee in favour of Zimnat Lion’s policyholders, which will result in MHM paying policyholder obligations owed by Zimnat Lion to “its insurance counterparties, should the company be unable to pay upon a claim that has been assessed as due”. A copy of the guarantee will be placed on the website of Zimnat as long as it remains in force. GCR has reviewed the guarantee together with the legal opinion, as well as relevant board resolutions, and is satisfied that it meets the relevant conditions of unconditionality, irrevocability, timeliness and ranking in line with MHM’s own creditors.

MHM is an Intermediary Non-Operating Holding Company fully owned by Masawara Plc (“Masawara”). We consider MHM the guarantor to be essential to Masawara PLC, due to the fact that it contributes approximately 58% of ultimate group revenues. In this respect, the company’s credit profile is similar to that of its parent. Masawara’s business profile is sound, underpinned by well-established insurance franchises in Zimbabwe and Botswana which dominate total income, supported by diverse interests in the property and hospitality sectors. Furthermore, the financial profile has been maintained within a healthy range, with the earnings assessment moderating slightly due to the marked impact of the COVID-19 pandemic on the hospitality sector.

Outlook statement

The Stable Outlook reflects GCR’s expectations that Masawara’s earnings performance will not reduce below the current range, as the hospitality business recovers from the lockdown from 2H F20 and into FY21. The expected stabilisation of earnings is likely to support largely unchanged capitalisation and liquidity strength over the rating horizon.

Rating triggers

Positive rating action may follow material improvements in capitalisation and liquidity of Masawara. Conversely, downward rating movement may follow sustained earnings weakness, and/or reduction in capitalisation beyond expectations.

Analytical contacts

Primary analyst Linda Matavire Analyst: Insurance Ratings
Johannesburg, ZA LindaM@GCRratings.com +27 11 784 1771
Secondary analyst Godfrey Chingono Deputy Sector Head: Insurance Ratings
Johannesburg, ZA GodfreyC@GCRratings.com +27 11 784 1770
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

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
Jurisdictional Supplement for Criteria, July 2020
GCR Country Risk Scores, May 2020
GCR Insurance Sector Risk Scores, July 2020

Ratings history

Zimnat Lion Insurance Company Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Claims paying ability Initial National A-(ZW) Stable Outlook May 2009
Financial Strength Last National A+(ZW) Rating Watch Evolving July 2020

Risk score summary

Rating components and factors Risk scores
Operating environment 0.00
Country risk score 0.00
Sector risk score 0.00
Business profile 0.00
Competitive positioning 0.00
Premium diversification 0.00
Management and governance 0.00
Financial profile 0.00
Earnings 0.00
Capitalisation 0.00
Liquidity 0.00
Comparative profile 6.00
Group support 6.00
Government support 0.00
Peer analysis 0.00
Total score 6.00

Glossary

Premium The price of insurance protection for a specified risk for a specified period of time.
Property Movable or immovable asset.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Rating Watch See GCR Rating Scales, Symbols and Definitions.
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.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Securities Various instruments used in the capital market to raise funds.
Security One of various instruments used in the capital market to raise funds.
Unconditional Not subject to any conditions.
Upgrade The rating has been raised on its specific scale.

SALIENT POINTS OF ACCORDED RATINGS

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 was based solely on the merits of rated entity, security or financial instrument being rated; and c.) such rating was 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 above 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 rated entity and other reliable third parties to accord the credit rating included:

  • Audited financial results as at 31 December 2019;
  • Four years of comparative audited financial statements to 31 December
  • Full year budgeted financial statements for 2020;
  • Unaudited interim results to 30 September 2020;
  • Masawara Holding Mauritius Limited Guarantee;
  • Reinsurance cover notes for 2020; and
  • Other relevant documents

Due to severe foreign currency shortages, hyperinflation and significant monetary and exchange control policy changes over the last 12-18 months, in our opinion, the national scale credit ratings on Zimbabwean entities are not directly comparable to credit ratings and risk scores within other markets. Furthermore, outlook statements may fail to capture forward looking trends due to the extreme volatility in the operating environment and audited opinions. See the latest Jurisdictional Supplement for Criteria, published July 2020.

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