GCR affirms Nouvelle Compagnie Africaine de Reassurances’ rating of BBB-(CI); Outlook Stable.

11 Dec 2018 In Rating Notifications

GCR affirms Nouvelle Compagnie Africaine de Reassurances’ rating of BBB-(CI); Outlook Stable.

Johannesburg, 11 December 2018—Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Nouvelle Compagnie Africaine de Reassurances of BBB-(CI), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Nouvelle Compagnie Africaine de Reassurances of B, 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 Nouvelle Compagnie Africaine de Reassurances (“NCA Re”) based on the following key criteria:

NCA Re’s ratings continue to display sensitivity to the uncertainty presented by premium receivables aged above 180 days. However, short term risks have been mitigated by the successful capital raising exercise that mobilised XOF3.3bn in capital,
with further outstanding commitments amounting to XOF1.2bn. Accordingly, issued capital is expected to measure at XOF10.5bn at FY18 (FY17: XOF7.2bn). Nevertheless, limited credit controls and the absence of a formal capital management strategy (given risks in the operating environment vis-à-vis developing risk management functions) could offset short-term capital improvements. In this regard, the development of risk management and related functions represents a key input in GCR’s assessment of the reinsurer’s medium-term rating prospects.

Liquidity metrics were maintained within a sound range, with cash and equivalents covering net technical reserves and average monthly claims by 1.2x (FY16: 1.2x) and 30 months (FY16: 20 months) respectively. The series of capital injections is expected to support liquidity within a sound range over the outlook horizon. However, GCR notes potential for moderation, given the absence of sound realised profits from operations relative to business scale and stretched payables.

The reinsurer’s business profile remained at moderate levels, a function of an intermediate competitive position and a well-diversified business mix. In this regard, despite growth moderation over the last two years, the reinsurer maintained a market share of 6% (FY16: 5%), and a diversified business mix with four lines of business contributing materially to gross premiums. Going forward, a relatively similar business mix is expected given relative stability in revenue sources, with further support to the business profile expected to stem from a fair level of geographic diversification.

Earnings capacity is viewed to be weak, reflecting pressures from additional premium debtor impairments, which materially constrain profit generation. As such, the three-year adjusted net result amounted to a surplus of XOF495m (review period: XOF3.7bn deficit), compared to a nominal surplus of XOF2.3bn (review period: XOF3bn). GCR notes the improvement in profitability in recent years, which could support a strengthening in earnings capacity to a moderate level over the medium term, should earnings risk from poor credit controls and loss volatility subside.

The institution of stringent controls on credit extension and asset quality, which positively reflect on key credit protection metrics may result in positive rating action. Conversely, a material deterioration in asset quality may trigger negative rating action. Furthermore, an increase in aged premium receivables beyond expectations could pressure the ratings.

NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATINGS HISTORY
   
Initial rating (March 2017) Initial rating (March 2017)
Claims paying ability: BBB-(CI) Claims paying ability: B
Outlook: Stable Outlook: Stable
   
Last rating (December 2017) Last rating (December 2017)
Claims paying ability: BBB-(CI) Claims paying ability: B
Outlook: Negative Outlook: Negative

 

 

 

ANALYTICAL CONTACTS

Primary Analyst Secondary Analyst
Godfrey Chingono Fleur Ngassa
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

Susan Hawthorne
Senior Credit Analyst
(011) 784 - 1771
.(JavaScript must be enabled to view this email address)

 

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated May 2018

Criterial for Rating Newly Established and Start-Up Insurance Companies, updated May 2018

Nouvelle Compagnie Africaine de Réassurances rating reports, 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/RATING-SCALES-DEFINITIONS. 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 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, 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.

Nouvelle Compagnie Africaine de Reassurances 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 Nouvelle Compagnie Africaine de Reassurances.

The information received from Nouvelle Compagnie Africaine de Reassurances and other reliable third parties to accord the credit ratings included:

  • Audited annual financial statements to 31 December 2017
  • Four years of comparative audited numbers
  • Budgeted financial statements for 2018
  • The current year retrocession cover notes, and
  • 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
Capacity The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.
Capital The sum of money that is invested to generate proceeds.
Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
Capital Adequacy A measure of the adequacy of an entity’s capital resources in relation to its risks.
Cash Funds that can be readily spent or used to meet current obligations.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Distribution Channel The method utilised by the insurance company to sell its products to policyholders.
Enterprise Risk Management ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.
International Scale Rating (“ISR”) International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
Intermediary A third party in the sale and administration of insurance products.
Interest Money paid for the use of money.
Investment Portfolio A collection of investments held by an individual investor or financial institution.
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.
National Scale Rating (“NSR”) National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.
Policyholder The person in actual possession of an insurance policy.
Portfolio All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period, usually a period of twelve to eighteen months.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
Short Term Current; ordinarily less than one year.
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.
Statutory Required by or having to do with law or statute.
Subordinated Debt Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.
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 more detailed glossary of terms, please click here

 

 

 

 

 

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