Zambian Reinsurance Company Limited’s (“Zambian Re”) national scale ZMK currency claims paying ability rating was downgraded from BBB+ (triple B plus) to BBB (triple B), whilst the international scale US$ currency claims paying ability rating was maintained at B (single B).
The company forms part of a regional reinsurance group (namely Baobab Reinsurance Company (Pvt) Limited), which provides technical support in terms of underwriting and retrocession negotiations. Zambian Re’s business profile, however, continues to be limited by its small capital base, with the company displaying a marginal competitive market position. The reinsurer also exhibits a relatively concentrated portfolio, with a limited number of cedants generating a large proportion of premium income. Furthermore, the largest intermediary is responsible for 17% of GWP. The rating took cognisance of the fact that Zambian Re’s solvency has weakened noticeably over the last two years, with the balance sheet further undermined by significant debtor balances. Whilst it is the company’s plan to achieve an overall capital target of US$4m, the timing and amount to be injected by shareholders remains uncertain. Note was also taken of the reinsurer’s high treaty retentions on a per risk basis, which increases capital risk further.
The reinsurer’s key liquidity measures remain very weak, signifying increasing liquidity strain. Further, Zambian Re’s overall level of profitability has displayed a highly volatile trend over the review period, stemming largely from large swings in claims and significant foreign currency movements. The international scale rating is constrained by the low sovereign rating of Zambia (B+), and the fact that all of the reinsurer’s invested assets are domiciled locally. Positively, the credit quality of retrocessionaires on the XOL programme is relatively high, although the whole account surplus treaty is of a lower credit quality.
Sheri Few https://globalratings.net/uploads/files/December_2011.pdf
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