S&PGR Afrms GIC Re South Africa At ‘BB+/zaA+’; Outlook Stable

Press Release: S&PGR Afrms GIC Re South Africa At ‘BB+/zaA+’; Outlook Stable

The following is a press release from Standard & Poor's: 
     -- GIC Re South Africa has reinforced its capital adequacy at a high level 
following a shareholder capital injection in the second half of 2016, and its 
financial profile remains at less than adequate, reflecting the small relative 
absolute capital base and moderate risk position. 
     -- We factor into our assessment our view of GIC Re South Africa's 
vulnerable business risk profile due to its operational focus on Sub-Saharan 
Africa, small size of the portfolio, and losses recorded in fiscal year ended 
March 31, 2016. 
     -- The company benefits from its strategic importance to its parent, 
General Insurance Corp. of India. 
     -- We are affirming our 'BB+' and 'zaA+' ratings on GIC Re South Africa. 
     -- The outlook is stable, reflecting our expectation that the reinsurer's 
extremely strong capital adequacy will not deteriorate and that earnings will 
JOHANNESBURG (S&P Global Ratings) July 7, 2016--S&P Global Ratings today 
affirmed it's 'BB+' long-term financial strength and counterparty credit 
ratings on South Africa-based composite reinsurer GIC Re South Africa Ltd. (GIC 
Re SA). The outlook is stable. 
At the same time, we affirmed our 'zaA+' South African national scale rating on 
the company. 
The affirmation follows GIC Re SA's receipt of a capital injection from 
shareholders to support the company's strong premium growth projected over the 
medium term. As a result, GIC Re SA enjoys a strengthened capital base. 
We assess GIC Re SA's financial risk profile as less than adequate, reflecting 
lower-adequate capital and earnings, a moderate risk position, and adequate 
financial flexibility. On the back of the underwriting losses recorded, 
shareholder's equity declined to South African rand (ZAR) 80 million at fiscal 
year ended March 31, 2016. After that date, parent General Insurance Corp. of 
India (GIC Re India) has committed to injecting ZAR130 million to support rapid 
net premium growth of between 10%-25% projected over the coming three years. 
Post the capital injection, we expect GIC Re SA will maintain this high level 
of capitalization and extremely strong capital adequacy, as the overall 
underwriting performance improves and the underwriting portfolio gains scale. 
We consider the company's risk position to be moderate, reflecting some 
investment portfolio and financial institutions concentrations, as well as the 
possibility of additional sources of capital and earnings volatility owing to 
the company's small size. Our assessment of financial flexibility is adequate. 
The company is entirely dependent on GIC Re India, which we understand is 
highly supportive of its subsidiary. We have observed this support in capital 
injections and the significant retrocession agreement between parent and 
We consider GIC Re SA's business risk profile to be vulnerable, incorporating 
the high industry risk the company faces writing business in Sub-Saharan Africa 
and the company's less-than-adequate competitive position. The insurer 
continues to pursue an organic growth strategy within key regions by servicing 
existing business and expanding its portfolio. The company's South African 
business currently comprises approximately 27% of gross premium and includes a 
small life book of business that is in run-off. Outside South Africa, the 
reinsurer's core markets include Kenya and Nigeria, and it has a presence in 18 
other African countries. 
We continue to view GIC Re SA's competitive position as less than adequate. 
Although our assessment remains unchanged, our view is reinforced by the 
significant underwriting losses recorded in the past year. The reinsurer's 
performance is weaker than peer group averages in the region, and deviates 
noticeably from projections. Still, we expect that underwriting performance 
will improve in the fiscal year ending March 31, 2017, and again in fiscal 2018 
as the book gains scale and the company either reprices or terminates 
loss-making portfolios. Our overall assessment is constrained by the company's 
small size in terms of total assets and gross premiums. 
We regard GIC Re SA's enterprise risk management (ERM), management and 
corporate governance practices, and liquidity as neutral factors for the 
rating. We note the company's improvements to its ERM framework, and we 
continue to expect further enhancements to risk controls and overall risk 
culture as the company matures. GIC Re SA has a small management team, which we 
consider appropriate for the overall size of the operation. We do not 
anticipate any changes to the overall strategic direction of the subsidiary, 
following its formation in 2014. We consider GIC Re SA's liquidity to be 
exceptional, supported by a conservative investment portfolio as well as the 
absence of debt issues or confidence-sensitive liabilities. 
We incorporate one notch of support in the long-term rating to reflect GIC Re 
SA's strategic importance to its parent. 
The stable outlook reflects our expectation that GIC Re SA's extremely strong 
capital adequacy will not deteriorate and that earnings will improve. Despite 
the robust premium expansion within Sub-Saharan African business, we expect an 
improvement to the underwriting performance and that the combined ratio will 
move toward the 95%-100% range over the medium term. 
A positive rating action is unlikely over the next two years, but we could 
raise the rating on GIC Re SA if our view of the parent's financial strength 
were to improve. 
We could lower the ratings if we viewed GIC Re SA as less strategically 
important to the group. 
Related Criteria 
     -- General Criteria: S&P Global Ratings' National And Regional Scale 
Mapping Tables - June 01, 2016 
     -- General Criteria: National And Regional Scale Credit Ratings - 
September 22, 2014 
     -- General Criteria: Group Rating Methodology - November 19, 2013 
     -- Criteria - Insurance - General: Enterprise Risk Management - May 07, 
     -- Criteria - Insurance - General: Insurers: Rating Methodology - May 07, 
     -- General Criteria: Methodology: Management And Governance Credit Factors 
For Corporate Entities And Insurers - November 13, 2012 
     -- Criteria - Insurance - General: Refined Methodology And Assumptions For 
Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model 
- June 07, 2010 
     -- General Criteria: Use Of CreditWatch And Outlooks - September 14, 2009 
     -- Primary credit analyst: Trevor Barsdorf, Rating Analyst 
     -- Rating committee chairperson: David Laxton 
     -- Date initial rating assigned: July 20, 2015 
     -- Date of previous review: Dec. 9, 2015 
This rating has been determined by a rating committee based solely on the 
committee's independent evaluation of the credit risks and merits of the issuer 
or issue being rated in accordance with S&P Global Ratings published criteria 
and no part of this rating was influenced by any other business activities of 
S&P Global Ratings. 
This credit rating is solicited. The rated entity did participate in the credit 
rating process. S&P Global Ratings did have access to the accounts, financial 
records and other relevant internal, non-public documents of the rated entity 
or a related third party. S&P Global Ratings has used information from sources 
believed to be reliable but does not guarantee the accuracy, adequacy, or 
completeness of any information used. 
     -- Anchor: The starting point for rating an insurer, based on S&P Global 
Ratings' assessments of the business and financial risk profiles. 
     -- Business risk profile (BRP: Assesses the risk inherent in the insurer's 
operations and therefore the potential sustainable return to be derived from 
those operations. 
     -- Capital and earnings: Measure of an insurer's ability to absorb losses. 
     -- Collateral posting risk: Assessment of an insurer's exposure to 
collateral posting requirements in the event of rating downgrades or other 
triggers, relative to liquid assets. 
     -- Combined ratio: The ratio of the sum of loss expense, loss adjustment 
expense, and operating expenses divided by premiums earned. 
     -- Competitive position: An assessment based on an insurer's operating 
performance, branding, market position, diversification and control over its 
distribution channels. 
     -- Date initial rating assigned: The date S&P Global Ratings assigned the 
long-term foreign currency issuer credit rating on the entity. 
     -- Date of previous review: The date S&P Global Ratings last reviewed the 
credit rating on the entity. 
     -- Earnings before interest and taxation (EBIT): Profit before tax and 
interest expenses. 
     -- EBITDA: The sum of EBIT and depreciation on tangible fixed assets plus 
amortization of intangible assets except for deferred acquisition costs and 
value of business acquired. 
     -- Economic capital available: ECA is a broader, more economic view of 
owner (shareholders, or policyholders in the case of mutual) capital with a 
longer-term view on crystallizing value. 
     -- Employee benefits obligations: Employee postemployment defined-benefit 
obligations (including pension and retiree health care benefits) in terms of 
both liability and asset risks. 
     -- Enterprise risk management (ERM): Our assessment of ERM examines 
whether insurers execute risk management practices in a manner that effectively 
limits future losses. 
     -- Financial flexibility: The balance between an insurer's sources and 
uses of external capital and liquidity over the current and next two years. 
     -- Financial leverage ratio: Total financial obligations over the sum of 
economic capital available, debt, and hybrids. 
     -- Financial leverage: The financial leverage subfactor addresses the 
degree of an insurer's indebtedness relative to its total capitalization. Total 
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Press Release: S&PGR Afrms GIC Re South Africa At -2-

financial obligations over the sum of ECA (economic capital available), debt, 
and hybrids. 
     -- Financial risk profile (FRP): The consequence of decisions that 
management makes in the context of its business risk profile and its risk 
     -- Financial strength rating (FSR): A forward-looking opinion about the 
financial security characteristics of an insurer with respect to its ability to 
pay under its insurance policies and contracts, in accordance with their terms. 
     -- Fixed-charge coverage: Addresses an insurer's ability to service 
interest on financial obligations out of EBITDA. 
     -- Foreign exchange risk exposure: Assesses currency mismatches between 
assets and liabilities (including equity). The criteria define a significant 
mismatch as more than about 10% of total insurer's liabilities. 
     -- Headroom for covenants: Assesses the risk to an insurer's liquidity of 
not complying with covenants and rating triggers on its third-party financial 
obligations, including reinsurance and insurance contracts. 
     -- High-risk assets: Volatile or illiquid assets. 
     -- Insurance Industry And Country Risk Assessment (IICRA): Addresses the 
risks typically faced by insurers operating in specific industries and 
countries, and is generally determined at a country or regional level. 
     -- Intangibles: The sum of goodwill, intangible assets, deferred 
acquisition costs (DAC), value of in-force, value of business acquired, and 
deferred tax assets. 
     -- Issuer credit rating (ICR): A forward-looking opinion about an 
obligor's overall creditworthiness, focusing on its capacity and willingness to 
meet its financial obligations in full and as they come due. 
     -- Operating return on embedded value: Post-tax operating profit divided 
by the average of embedded value at period-end and a year before. 
     -- Prebonus pretax earnings: The sum of EBITDA and policyholder dividends. 
     -- Return on assets (ROA): Indicates to us how efficiently management uses 
its assets to generate earnings by comparing EBIT to the two-year average of 
total assets adjusted. Total assets adjusted is total assets minus reinsurance 
     -- Return on revenue (ROR): Total revenue is used to capture net premiums 
from underwriting activities as well as investment income and fees generated as 
a result of those underwriting activities. Where total revenue is not reported, 
it is the sum of the net premiums earned, net investment income, and other 
     -- Risk position: Assesses material risks not incorporated in the capital 
and earnings analysis and specific risks that could affect the volatility of an 
insurer's TAC. 
     -- Return on equity (ROE): Measures the return available to stockholders. 
Calculated as reported net income divided by the year-end average of reported 
stockholders' equity for the past two years. 
     -- Stand-alone credit profile (SACP): S&P Global Ratings' opinion of an 
insurer's creditworthiness, in the absence of extraordinary intervention from 
its parent, affiliate, or related government. 
     -- Total adjusted capital (TAC): S&P Global Ratings' measure of the 
capital an insurer has available to meet capital requirements. 
Certain terms used in this report, particularly certain adjectives used to 
express our view on rating relevant factors, have specific meanings ascribed to 
them in our criteria, and should therefore be read in conjunction with such 
criteria. Please see Ratings Criteria at www.standardandpoors.com for further 
information. Complete ratings information is available to subscribers of 
RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings 
affected by this rating action can be found on S&P Global Ratings' public Web 
site at www.standardandpoors.com. Use the Ratings search box located in the 
left column. Alternatively, call one of the following S&P Global Ratings 
numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 
20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm 
(46) 8-440-5914; or Moscow 7 (495) 783-4009. 
Primary Credit Analyst:  Trevor Barsdorf, Johannesburg +27112144852; 
Secondary Contact:  Neil Gosrani, London (44) 20-7176-7112; 
Additional Contact:  Insurance Ratings Europe; 
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