Johannesburg, 30 Jan 2015 — Global Credit Ratings has today assigned an initial national scale claims paying ability rating to Oakhurst Insurance Company Limited of A-(ZA); with the outlook accorded as Stable. Furthermore, Global Credit Ratings has assigned an initial international scale claims paying ability rating to Oakhurst Insurance Company Limited of BB+; with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Oakhurst Insurance Company Limited (“Oakhurst”) based on the following key criteria:
The ratings are underpinned by Oakhurst’s strong risk adjusted capitalisation levels, with statutory CAR cover expected to be maintained above 2x over the rating horizon. The insurer has achieved sound levels of underwriting profitability through the cycle, which is expected to be sustained on the back of its scientific underwriting approach and the large niche component in the business mix. In this regard, despite its motor orientated focus, Oakhurst’s earnings stream is well diversified across sub-segments and distribution channels.
Key liquidity measures are expected to remain adequate, although a softening is anticipated over the rating horizon following a change in the investment composition. Oakhurst reflects a strong balance sheet structure, with investments representing more than 90% of the asset base over the past two years. Note is, however, taken of the anticipated move into higher yielding investment classes, which is likely to introduce a greater degree of asset risk over the short to medium term. Reinsurance is placed with well rated counterparties, while risk and event net retention levels are considered to be prudent.
The insurer’s limited market share represents a relative rating weakness. This notwithstanding, GCR considers Oakhurst to be well placed for continued penetration into the core personal lines space. Furthermore, the expansion into commercial lines provides scope for improved earnings diversification and economies of scale.
The successful execution of expansion initiatives while maintaining sound underwriting profitability could translate into positive rating movement. This is premised on the insurer maintaining liquidity and risk adjusted capital adequacy at prudent levels. In contrast, a sustained deterioration in underwriting profitability and/or weakening in other key credit protection measures could place downward pressure on the ratings.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATING HISTORY|
|Initial /Last rating (Jan/2015)||Initial / Last rating (Jan/2015)|
|Claims paying ability: A-(ZA)||Claims paying ability: BB+|
|Outlook: Stable||Outlook: Stable|
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (Updated July 2014)
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Assets||The items on the balance sheet of the insurer which show the book value of property owned.|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commercial Lines||This term is used to refer to insurance for businesses, professionals, and commercial establishments.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Insurance||A formal social device for reducing risk by transferring the risks of several individual entities to an insurer.|
|Insurance Company||Any corporation primarily engaged in the business of furnishing insurance protection to the public.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss||The happening of the event for which insurance pays.|
|Net Retention||The amount of insurance that a ceding company keeps for its own account and does not reinsure.|
|Personal Lines||Types of insurance, such as auto or home insurance, for individuals or families rather than for businesses or organisations.|
|Policyholder||The person in actual possession of an insurance policy.|
|Rating||The statistical process by which insurers determine risks and pricing for the basic classes of insurance.|
|Reinsurance||The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|Securities||Evidences of a debt or of ownership, as stocks, bonds, and checks.|
|Statutory||Required by or having to do with law or statute.|
|Underwriting||The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned.|
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Oakhurst Insurance Company Limited participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to Oakhurst Insurance Company Limited with no contestation of the rating.
The information received from Oakhurst Insurance Company Limited and other reliable third parties to accord the credit rating(s) included the latest audited annual financial statements to February 2014 (plus four years of audited comparative numbers), latest independent auditor’s report to shareholders for 2014, full year budgeted financial statements to February 2015, unaudited year to date management accounts to September 2014, the quantitative statutory return for 2014, and other related documents.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
GCR accords an initial rating of A-(ZA) to Oakhurst Insurance Company Limited; Outlook Stable