Announcements

GCR affirms Credit Guarantee Insurance Corporation of Africa Limited’s CPA rating

Johannesburg, 31 Jul 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Credit Guarantee Insurance Corporation of Africa Limited of AA(ZA); with the outlook accorded as Stable.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Credit Guarantee Insurance Corporation of Africa Limited (“CGIC”) based on the following key criteria:

The insurer’s business profile reflects extremely strong competitive positioning, with CGIC established as a market leader (69% market share). This is partly offset by the high product risk emanating from the monoline focus on trade credit insurance and the inherent cyclicality of the industry combined with the macro-economic backdrop.

CGIC has strong capitalisation with an interim statutory CAR cover at 2x and international solvency at 109% in F13. Capital management is viewed to be robust. As such the preservation of risk-based capital strength is expected to be managed well in light of the specific capital requirements of the credit insurance business model (specifically in the build-up to SAM).

Liquidity metrics are expected to remain sound, with coverage of technical provisions and average monthly claims requirements measuring at healthy levels. Despite a reduction in equity market exposure over the review period, listed shares still accounted for a high proportion of shareholders funds (FYE13: 59%; 1H F14: 52%), implying a high degree of capital risk.

CGIC continued to register underwriting profitability over the past four years on both gross and net bases. This is reflective of the insurer’s core capabilities in portfolio management and underwriting disciplines. GCR views this to be indicative of sustained earnings capacity over the rating horizon.

Reinsurance programmes are placed with highly rated counterparties, which is viewed positively by GCR.

An upward movement of the rating or outlook is deemed unlikely given the current global financial market and growth uncertainties, which could have a significant bearing on the monoline credit insurer’s loss experience given the sensitivities to the credit cycle. Conversely, a downgrade may arise if multiple significant underwriting losses were to materialise thereby leading to rapid capital erosion, in the absence of additional capital support. A significant loss of reinsurance support, particularly to high risk exposures (given the large sums insured) could lead to a negative rating movement.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY

Initial rating (Nov/2000)
Claims paying ability: A+(ZA)
Outlook: Stable

Last rating (Aug/2013)
Claims paying ability: AA(ZA)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Yvonne Masiku
Analyst
(011) 784-1771
Ymasiku@globalratings.net

Committee Chairperson
Marc Chadwick
Sector Head: Insurance
(011) 784- 1771
Chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013)
Credit Guarantee Insurance Corporation of Africa Limited rating reports, 2000 – 2013.
RSA Short Term Insurance Bulletin 2001-2013.

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/RATING-SCALES-DEFINITIONS. 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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

Credit Guarantee Insurance Corporation of Africa 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 Credit Guarantee Insurance Corporation of Africa Limited with no contestation of the rating.

The information received from Credit Guarantee Insurance Corporation of Africa Limited and other reliable third parties to accord the credit rating(s) included the latest audited annual financial statements for FYE13 (plus four years of comparative numbers), latest independent auditors report to management for FYE13, full year detailed budgeted financial statements for FYE14, most recent year to date management accounts to March 2014, the current year reinsurance cover notes and 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.

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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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