Global Credit Rating said CIC Life’s earnings trajectory has weakened over the review period, with the three-year average operating margin equating to six per cent between financial years 2014 and 2016.
This is compared to excess of 10 per cent at the start of the review period. The ratings are valid until May 2018, according to GCR’s latest rating notifications.
CIC Group #ticker:CIC Life assurance and General insurance have been accorded a negative outlook by South African Global Credit Rating (GCR), which says an improved rating is unlikely in the near future.
This is despite the listed firm retaining financial strength and claims paying ability at ‘A+’ and ‘A’ ratings respectively.
GCR said CIC Life’s earnings trajectory has weakened over the review period, with the three-year average operating margin equating to six per cent between financial years 2014 and 2016.
This is compared to excess of 10 per cent at the start of the review period. The ratings are valid until May 2018, according to GCR’s latest rating notifications.
“GCR views capital adequacy to have moderated in recent years, having been impacted by a reduction in earnings and higher relative dividend distributions.”
“Going forward, risk-adjusted capitalisation is expected to continue to trend within a more limited range, in view of anticipated short to medium term growth targets,” GCR said.
GCR said the ability of the insurer to achieve enhanced cost efficiencies in the lower yielding investment environment—contributing towards strengthened levels of capital accumulation—is expected to be a key credit consideration over the rating horizon.
It, however, said that positive rating action is unlikely in the near term, given the weakening in key credit assessment metrics. The firm added that CIC general’s negative outlook reflects weakening earnings’ capacity to an intermediate level, from moderately strong historical levels.
However, it said the management’s ability to sustainably achieve profitability in line with targets may result in the rating reverting to a ‘stable’ outlook.
“The negative outlook is as a result of lower profits in 2016, and we know why the profits were down. With the economic backdrop of an election year, struggling economy (high inflation and barely recovering NSE), I can see why the rating agency is apprehensive about the outlook,” Tom Gitogo, CIC Group chief executive.
“However, as far as we are concerned, we are on track to better profitability this year. Our loss ratios continue to improve, our top line is growing and our investment income is looking up.”
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