South African-based Global Credit Ratings (GCR) has downgraded CIC General Insurance credit rating to A-(KE) from A(KE) with a stable outlook.
The downgrade of its national scale claims paying ability follows sustained decline in earnings capacity, together with a reduction in risk-adjusted capital adequacy.
The agency says they (declines) are expected to persist over the outlook horizon.
“In this respect, CIC General’s earnings capacity moderated to an intermediate level, from moderately strong levels historically. This was underpinned by elevated operating expenses impacting adversely on underwriting profitability,” said GCR in the notification.
The underwriting margin averaged minus eight per cent over the past two years compared to three per cent over the prior three-year cycle and is expected to persist at the levels.
The agency said risk-adjusted capitalisation dropped in the last two years from previous strong levels largely thanks to increased insurance, credit and market exposures.
CIC Group #ticker:CIC in a statement said the lower rating mainly resulted from motor insurance.
“Management expects that the steps CIC has taken, including the introduction of a motor assessment centre, will significantly improve CIC General’s underwriting profitability, reducing any short-term pressure on capital,” said CIC Group chief executive Tom Gitogo.
While credit risk is expected to reduce on the back of stricter debt management practices, GCR expects capital adequacy to remain as are.
GCR said CIC General’s business profile is moderately strong, supported by strong competitive positioning and fairly well diversified earnings – although the portfolio evidences heavy reliance on medical and motor.
However, GCR affirmed the rating of CIC Life Assurance, another subsidiary of CIC Group, as A+(KE) with a stable outlook.
The agency said the life business arm has generated enough funds to allocate to capital if need be and more than enough to pay claims and benefits for policies that are maturing.