Announcements

Zimnat Lion rating maintained at A-, rating watch

The domestic ZIM$ currency claims paying ability rating accorded to Zimnat Lion Insurance Company Limited (“Zimnat Lion”) has been affirmed at A- (single A minus), with the rating maintained on rating watch.

Zimnat Lion is a wholly owned subsidiary of TA Holdings (which has extensive interests in property and insurance, in both Zimbabwe and neighbouring countries), which provides the insurer with significant business benefits. A further rating factor is Zimnat Lion’s position as a leading insurer in the market, augmented by established relationships with key brokerages and strategic linkages with domestic reinsurers. In this regard, significant market penetration is afforded through Zimnat Lion’s relationship with broker Aon Zimbabwe.

Zimnat Lion’s retention strategy is underpinned by its relatively low capital position, which limits capacity compared to other market participants. As a result, Zimnat Lion displayed a very high operating cost base relative to retained premiums, resulting in significant underwriting margin strain, in turn constraining financial flexibility. This notwithstanding, the management expense ratio is expected to improve going forward, in line with higher retention levels, with a substantially lower 67% of GWP being ceded to reinsurers for the first half of F10.

Underpinned by fair value gains on equity and property investments, coupled with low retention levels, Zimnat Lion’s international solvency margin was recorded at a high 331% in F09, which compared favourably to industry measures. However, increased premium volumes for 1H F10, coupled with a change in retention strategy, resulted in substantial solvency compression, with FYE10 solvency forecast at 70%. While key liquidity measures were comfortable as at FYE09, the pronounced decline for the first half of F10 is a significant concern, compounded by the high weighting in property investments. Furthermore, the somewhat high proportion of listed equity relative to shareholders funds (1H F10: 32%) increases capital risk, particularly given the bearish market in 2010.

Notwithstanding improvements made on the socio-political front, economic growth remains constrained, while the operating climate remains difficult. This is likely to prolong industry recovery and negatively impact profitability in the short to medium term.

Marc Chadwick.
https://globalratings.net/uploads/files/GCRinsights_March_20113.pdf

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