FACTORS AFFECTING CREDIT RATING AND STRATEGIES USED BY ZIMBABWEAN REINSURERS

Authors: Alson Nhari & Dr. Dumisani Rumbidzai Muzira

ABSTRACT

This study was performed to explore factors affecting credit rating and strategies used by Zimbabwean reinsurers to increase their rating. The study adopted the KMV Model. The study utilised a descriptive research design. The population set was the nine reinsurance companies in Zimbabwe and eight of them were the study sample. The Chief Executive Officers (CEOs) of the eight companies were purposively selected to be interviewed. From the literature and the interviews, four variables which are; Operating Environment, Business Profile, Financial Profile and Comparative Profile are the main factors that affect the credit rating of reinsurers. Some of the strategies used by Zimbabwean reinsurers are change of geographical location, keeping their credit utilization rate low and enhancing the balance sheet strength, expeditious claims payment, rate manipulations and split ratings.

Keywords: Credit Rating, Reinsurers, Business Profile, Financial Profile

REFERENCES

  • Amstad, M. (2022). Sovereign ratings of advanced and emerging economies after the crisis.
  • BAE, D. S. (2019). INTERNAL CREDIT RATING FRAMEWORK FOR REAL ASSET INVESTMENT. International Journal of Strategic Property Management, 44.
  • Bissoondoyal. (2011). an analysis of the determinats of banking ratings: Comparison across ratings agencies. Australian Journal of Management, 36(3), 405-424. doi:https://doi.org/10.1177/0312896211426676
  • Bolton, P. F. (2012). The credit ratings game. The Journal of Finance, 85-112.
  • Cantor. (2017). Differences of opinion and selection bias in the credit rating industry. Journal of Banking & Finance, 21(10), 1395-1417. Doi: 10.1016/S0378-4266(97)00024-1
  • Ferri, G. a. (2003). “How Do Global Credit-Rating Agencies Rate Firms from Developing Countries?”  Asian Economic Papers, 30-56.
  • Financial Glossary. (n.d). split rating. Retrieved from https://financial-dictionary.thefreedictionary.com/split+rating
  • Fitch, R. (2014). Sovereign rating criteria. Retrieved from fitchratings.com.: www.fitchratings.com.
  • Flick, U. (2011). Mixing methods, triangulation, and integrated research. Qualitative inquiry and global crises, 132(1), 1-79.
  • Fuchs, A. (2013). The home bias in sovereign ratings. University of Heidelberg.
  • GCR Ratings. (2019). CRITERIA FOR RATING INSURANCE COMPANIES. Retrieved from WWW.GCRRATINGS.COM/RATING_INFORMATION
  • Gray, S. M. (2016). The determinants of credit ratings: Australian evidence. Australian Journal of Management, 333-354. doi:10.1177/031289620603100208
  • Griffin, J. M., Nickerson, J., & Tang, D. Y. (2013). Rating shopping or catering? An examination of the response to competitive pressure for CDO credit ratings. The Review of Financial Studies, 26(9), 2270-2310.
  • Hau, H. L.-I. (2013). Bank ratings: what determines their quality? Economic Policy.
  • IISA. (2019). Value of Credit Rating in the African Context. Credit Rating Value. IISA.
  • IPEC. (2021). SHORT TERM 4th QUARTER REPORT. Harare: IPEC.
  • Kraft. (2015). Do rating agencies cater? Evidence from rating-based contracts. Journal of Accounting and Economics, 264-283.
  • Langohr, H. &. (2008). The rating agencies and their credit ratings: What they are, how they work and why they are relevent. . West Sussex: England: John Wiley & Sons Ltd.
  • Livingston, M. (2018). Split bond ratings and rating migration. Journal of Banking & Finance, 1613–1624. Retrieved from https://site.warrington.ufl.edu/miles-livingston/files/2019/05/Split-Bond-Ratings-and-Rating-Migration.pdf
  • Moody’s Investors Service. (2013). Ratings symbols and definitions. Retrieved from https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004
  • Papaikonomou, V. L. (2015). Credit rating agencies and global financial crisis: need for a paradigm shift in financial market regulation. Studies in Economics and Finance, 27(2), 161-174. doi:10.1108/10867371011048643
  • Pinches, G. E. (2018). The adjustment of stock prices to bond rating changes. The Journal of Finance, 33(1), 29-44. doi:10.1111/j.1540-6261.1978.tb03387.x
  • Scaggs, A. (2017, June 9). When might a company be more creditworthy than its government? Financial Times. Retrieved from https://www.ft.com/content/6d5128c5-0303-3fd8-a7d7-21b948c496fa
  • Standard & Poor’s Ratings Services. (2011). Guide to credit rating essentials: what are credit ratings and how do they work? Retrieved from http://img.en25.com/Web/StandardandPoors/SP_CreditRatingsGuide.pdf
  • Standard & Poor’s Ratings Services. (2015). Guide to credit ratings criteria: Why criteria are important and how they are applied. Retrieved from http://pt.scribd.com/doc/142361735/Guide-to-Credit-Ratings-Criteria
  • Standard & Poor’s Financial Services. (2021, May 15). Corporate Rating Methodologies. Retrieved from StandardsandPoors.com: https://disclosure.spglobal.com/ratings/en/regulatory/login?locale=en_US
  • Tang, G. a. (2009). Did subjectivity play a role in CDO credit ratings? The Journal of Finance, 1293-1328.