GCR affirms Botswana Insurance Company Limited’s rating of AA-(BW); Outlook Stable.

30 Nov 2018 In Rating Notifications

GCR affirms Botswana Insurance Company Limited’s rating of AA-(BW); Outlook Stable.

Johannesburg, 30 November 2018—Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Botswana Insurance Company Limited of AA-(BW), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Botswana Insurance Company Limited of BBB-, with the outlook accorded as Stable. The ratings are valid until November 2019.

 

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Botswana Insurance Company Limited (“BIC”) based on the following key factors:

BIC’s ratings are supported by very strong capitalisation. The insurer maintained a sizeable capital base throughout the review period, which in conjunction with a comparatively low risk retention model and limited credit risk, catered for the quantum of market exposure. Cognisance is taken of the disposal of Lion Assurance Company of Uganda (“LAC”) as part of the 2016 corporate transaction with Sanlam Emerging Markets (“SEM”), which resulted in a reduction in market risk. Nevertheless, risk adjusted capitalisation remained within a similar range, given the concomitant reduction in capital.  Going forward, the scale of the current capital base is expected to support the quantum of the market risk, although continued high dividend pay-outs (review period average dividend pay-out ratio: 95%) would serve to moderate capital strength over the longer term.

The insurer receives further rating support from its healthy market position in the short term industry. BIC accounted for an unchanged 23% of total short term industry premiums in FY17, supported by strong brand recognition and well-entrenched relationships with clients. Furthermore, market position benefits from a very strong shareholder base, which gives access to vast technical expertise. In this respect, the insurer is viewed to be well-positioned to grow its market share against increasing competitive pressures and adverse market dynamics.

BIC registered a net loss of BWP1.3m in FY17, compared to generally solid profits posted over the review period, due to the realised loss on the disposal of LAC to the group under a tax-free reorganisation. The transaction heavily suppressed profitability, and was exacerbated by unrealised investment losses, offsetting robust underwriting margins (FY17: 15%, prior three years: 6%). Excluding the sizeable write-off, two year net return on revenue averaged 10%, supportive of sound earnings capacity. Furthermore, the reinsurance programme utilises counterparties of strong credit quality, while maximum net deductibles are viewed to be set at conservative levels relative to capital.

Liquidity is viewed to be moderately strong. Cash covered net technical liabilities and average monthly claims by a higher 0.8x (FY16: 0.7x) and 20 months (FY16: 14 months) at FY17, reflecting increased liquidity preference in investment portfolio structuring and operational cash investing. GCR believes liquidity could improve to a strong range over the medium term should tactical asset allocations and dividend distributions be aligned with sound risk based capital management parameters.

BIC’s revenue is viewed to be fairly well diversified across product lines, with three key lines of business contributing in excess of 10% to the business mix, which display sound gross premium scale. Product risk is expected to improve reflecting favourable offsetting movements in property and motor portfolios, coupled with the addition of diverse retail risks, which facilitate higher premium retention. In this respect, earnings diversification could strengthen over the medium term.

BIC’s international scale rating takes into account Botswana’s sovereign rating of A-, given that most of the insurer’s assets are locally domiciled, and the majority of its revenue is locally derived.

The national scale rating currently matches the national scale ceiling applicable to entities operating within the Botswana short term insurance industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. Downward rating pressure could emanate from a sustained weakening in profitability and/or a material reduction in capitalisation.

 

 

 

 

NATIONAL SCALE RATINGS HISTORY

INTERNATIONAL SCALE RATINGS HISTORY
Initial rating (December 2009) Initial rating (November 2013)
Claims paying ability: A+(BW) Claims paying ability: BBB-
Outlook: Stable Outlook: Stable
   
Last rating (December 2017) Last rating (December 2017)
Claims paying ability: AA-(BW) Claims paying ability: BBB-
Outlook: Stable Outlook: Stable

 

ANALYTICAL CONTACTS

Primary Analyst Secondary Analyst

Godfrey Chingono Siyuan Lu

Senior Credit Analyst Junior Credit Analyst

(011) 784-1771 (011) 784-1771

.(JavaScript must be enabled to view this email address) .(JavaScript must be enabled to view this email address)

Committee Chairperson

Yvonne Mujuru

Sector Head: Insurance Ratings

(011) 784-1771

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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated May 2018

Botswana Insurance Company Limited rating reports, 2009-2017

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. 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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Botswana Insurance 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 Botswana Insurance Company Limited.

The information received from Botswana Insurance Company Limited and other reliable third parties to accord the credit ratings included:

  • The audited annual financial statements to December 2017
  • Four years of comparative audited numbers
  • Unaudited year to date results to 31 October 2018
  • Budgeted financial statements to December 2018
  • Statutory Annual Return to 31 December 2017
  • 2018 reinsurance cover notes
  • Other related documents.

The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

 

 

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
Assets A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Assurance Terminology used to describe life insurance. This is common practice in Great Britain, Canada and South Africa. Insurance is usually used for the description of short-term insurance. However, the term insurance is used indiscriminately to describe both life and short-term insurance in practice.
Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
Capital Base The issued capital of a company, plus reserves and retained profits.
Conditions Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
Industry Risk The risk that defaults will arise in an industry because of factors specifically affecting that industry.
International Solvency Margin Measures the ability to cover current year’s written premiums using shareholder’s funds.
Interest Money paid for the use of money.
Liquidity The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Market Risk Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.
Net Loss The amount of loss sustained by an insurer after giving effect to all applicable reinsurance, salvage, and subrogation recoveries.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Reinsurance The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.
Retention The net amount of risk the ceding company keeps for its own account.
Solvency With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.
Underwriting The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
   

For a detailed glossary of terms please click here

 

 

 

 

 

 

 

 

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://GLOBALRATINGS.NET/UNDERSTANDINGRATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GLOBALRATINGS.NET/RATINGSINFORMATION. 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 THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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