The Ba1 IFS rating according to the global rating agency reflects NamibRe's ba2 standalone credit assessment and one notch of uplift due to its implied support from its sole shareholder, the Government of Namibia (Baa3, stable).
“The ba2 standalone credit assessment reflects (i) NamibRe's secure position in the Namibian insurance market - a result of the legislated mandatory cession, (ii) its good capitalization relative to its insured exposures, (iii) its moderate asset risk due to its primary investment exposures being to the government and the local banking sector, and (iv) the relatively short-tailed nature of the majority of its insurance exposures, which lowers reserving risk. Partially offsetting these strengths are (i) NamibRe's very small size relative to its global reinsurance peers, (ii) its geographic concentration in Namibia, (iii) moderate profitability, which has been deteriorating in recent years due to higher operating expenses and adverse claims experience, and (iv) less robust underwriting and risk management capabilities relative to its global peers.”
Moody's stated that the stable outlook for NamibRe's rating reflects the stable outlook for the Government of Namibia's Baa3 government debt rating.
“Our expectation that the NamibRe Act and mandatory cession will remain in effect for the foreseeable future, NamibRe's good capitalization relative to insured exposures, and actions management are implementing to improve operating profitability.”
The following factors could lead to an upgrade of the group's ratings: (1) an upgrade of Namibia's sovereign rating, (2) explicit support, most likely in the form of an irrevocable and unconditional guarantee, from the government, (3) a significant increase in premiums written that would support a larger scale, more robust operating infrastructure, and (4) improved profitability in the form of consistently lower combined ratios and average return on capital in excess of 15%.
Conversely, the following factors could lead to a downgrade of the company's ratings: (1) a downgrade of Namibia's government debt rating and/or a weakening credit profile of the Namibian banking sector, (2) evidence of a decrease in the level of implicit support from the government, including elimination or meaningful reduction of the mandatory cession, (3) continued deterioration in the combined ratio or the inability to maintain a sub-100 combined ratio, (4) gross underwriting leverage consistently in excess of 2.5x, and (5) a 10% decline in shareholders' equity over a 12-month period (from underwriting losses and/or capital management activity).
NamibRe is a state-owned corporation that was established by an Act of Parliament, the NamibRe Act (Act 22 of 1998), and commenced operations in 2001.
NamibRe's mandate is to reduce capital outflows in the form of reinsurance premiums and to retain, in Namibia, more capital generated by the insurance industry in the country.
To assist in fulfilling its mandate, the NamibRe Act stipulates a mandatory cession of a portion of all insurance and reinsurance premiums written in Namibia to NamibRe.