Eswatini’s insurance sector risk score of 2.75 reflects the counterbalance of low earnings risk and an intermediate regulatory environment by limited market size. The regulatory environment is characterised by a developing risk based solvency regime, an intermediate legislative framework and somewhat average transparency, albeit moderated by low levels of policy enforcement.
The Eswatini country risk score of ‘2.5’ is largely a reflection of its weak monetary and fiscal policies, in addition to low economic growth and high inequality levels. The before mentioned results in increasing debt levels, domestic arrears and low foreign reserves. Strong imports and exports between South Africa and Eswatini are largely considered to be positive. The size and diversity of the economy is considered to be weak in comparison to its peers.
Effective July 1, 2019, Zimbabwean entities are now required to apply International Accounting Standard 29 (“IAS 29”), ‘Financial Reporting in Hyperinflationary Economies’, in their financial reporting. We believe the implementation of IAS 29, could significantly increase market wide balance sheet and income statement volatility. As a result, we may see significant movements in capitalisation across the sector. The impact faced by the individual entities will depend on the balance sheet structure, i.e. monetary versus non-monetary assets and the current levels of capitalisation.
GCR has introduced a FAQ on the Criteria for Rating Insurance Companies to provide greater clarity regarding the approach to regulatory insulation for FSR ratings. In essence, the criteria allows GCR to provide greater levels of regulatory insulation for the FSR ratings of insurance companies.