GCR affirms Ghana Reinsurance Company Limited’s rating of AA(GH); outlook Stable
Global Credit Ratings has accorded the above credit ratings on Ghana Re based on the following key criteria:
The ratings take cognisance of the fact that Ghana Re is 100% owned by the Ghanaian government, and is 1 of only 2 locally registered reinsurers. This position is enhanced by regulatory local content reinsurance requirements. The reinsurer’s domestic market profile, albeit dampened following the discontinuation of mandatory legal cessions in 2008, exhibited a strong recovery in the review year. Management’s successful execution of enhancing strategic growth within the local market over the medium term will represent a key contributing factor to solidifying competitive positioning. This notwithstanding, the reinsurer’s high delivery cost ratio continues to constrain underwriting and operating performance, which is further impacted on by the volatility in the incurred loss ratio. Increased and sustained focus on cost efficiencies is critical to cushioning the underwriting margin going forward.
Supported by internally generated capital, the reinsurer’s capitalisation remains supportive of its business plan. The proposed capital raising initiatives were also factored into the rating. However, the significant premium debtor balances undermine the quality of revenue and earning’s potential, whilst also weakening the quality of the balance sheet. The ratings also recognise the reinsurer’s conservative investment strategy and strong liquidity metrics, with the majority of investments placed in liquid funds, limiting capital risk. In this regard, the reinsurer has maintained strong cash coverage of claims and technical liabilities throughout the review period. The rating also takes cognisance of the reinsurer’s conservative reserving, with technical reserves validated to be well above the required reserves. Risk retentions are low relative to both capital and written premiums, while 84% of participants on the reinsurer’s retrocession programme are rated secure. The international scale rating is impeded by Ghana’s sovereign rating of B+, as well as the limited premium growth evidenced in the bulk of the review period. This is, however, offset by the sizeable portion of the company’s assets (62% of cash and equivalents) held in hard currency.
Upward movement on the rating or outlook could develop with a stable and profitable underwriting track record, and continued growth augmenting earnings diversification. This must be accompanied by risk appropriate solvency levels, with a stringent capital management policy, and the maintenance of a prudent investment profile. A downgrade may arise if a sustained deterioration in the operating performance was evidenced, if the risk adjusted solvency margin fell below GCR’s comfort level for this rating on a sustained basis, and/or a weakening in key liquidity metrics.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (Nov/2005)||Initial rating (Nov/2005)|
|Claims paying ability: AA+(GH)||Claims paying ability: BB+|
|Outlook: Stable||Outlook: Stable|
|Last rating (Oct/2012)||Last rating (Oct/2012)|
|Claims paying ability: AA(GH)||Claims paying ability: BB+|
|Outlook: Stable||Outlook: Negative|
|+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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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SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings were influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity.
Ghana Reinsurance Company 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 ratings have been disclosed to Ghana Reinsurance Company Limited with no contestation of the rating.
The information received from Ghana Reinsurance Company Limited and other reliable third parties to accord the credit rating included 2012 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements, the unaudited management accounts to 31 March 2013, the current year retrocession cover notes, actuarial valuation statement, aged debtors provisioning policy document, ERM processes/framework, reserving methodologies, capital management policy.