Johannesburg, 14 Apr 2015 — Global Credit Ratings has today assigned a national scale claims paying ability rating to Western National Insurance Company Limited of A-(ZA); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Western National Insurance Company Limited (“Western National SA”) based on the following key criteria:
Western National SA is a South African short-term insurance company, focusing on commercial motor and property business. The company is 100% owned by Western Group Holdings Limited (Namibia) (“Western Group”). The ultimate shareholders of Western Group comprise PSG Konsult Group (60%) and Santam Group (40%).
Western National SA’s risk-adjusted capitalisation is sound, supported by capital injections amounting to R108m in F15. GCR expects the insurer to remain sufficiently capitalised relative to expected solvency assessment and management (“SAM”) parameters, supported by the capital management strategy in place.
The insurer employs a conservative investment strategy, which underpins strong liquidity metrics. Cash holdings covered net technical liabilities by an unchanged 1.6x at FYE15. Similarly, claims cash coverage remained stable at 10 months in F15. With no changes to the investment policy envisaged over the medium-term, GCR expects the liquidity metrics to remain at strong levels.
Underwriting profitability has been measured at sound levels over the last two years, with a margin of 4% in F15 (F14: 8%). Profitability has been supported by a competitive delivery cost structure, offsetting comparatively higher loss ratios compared to peers. As such, GCR expects Western National SA to achieve through-the-cycle profitability over the rating horizon, provided the insurer strengthens claims management processes, while adhering to strict underwriting principles.
Reinsurance arrangements are largely placed with highly rated counterparties, with the highest net retention per risk and event limited to levels viewed to be conservative.
The business profile reflects a modest level of competitive positioning, which limits the credit rating. The business model centres on providing intermediated commercial motor and property business. While GCR expects the insurer to continue to achieve growth, note is taken of the strong competitive dynamics in the intermediated segment. As such, the ability to achieve growth, while maintaining profitability, will be a key rating consideration.
The rating may be upgraded if the insurer’s business profile strengthens, by way of an increase in market share with enhanced earnings diversification, while maintaining profitability. This would need to be supported by risk-adjusted capitalisation and liquidity being maintained at sound levels. Conversely, a downgrade could result from a persistent deterioration in the underwriting result coupled with capitalisation contracting below adequate levels on a sustained basis.
|NATIONAL SCALE RATINGS HISTORY|
|Initial/Last rating (Apr/2015)|
|Claims paying ability: A-(ZA)|
|Primary Analyst||Secondary Analyst|
|Yvonne Masiku||Susan Hawthorne|
|(011) 784-1771||(011) 784-1771|
|Sector Head: Insurance|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, Updated July 2014
RSA Short Term Insurance Bulletins, 2001-2014
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.
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.
Western National Insurance Company Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to Western National Insurance Company Limited with no contestation of the rating.
The information received from Western National Insurance Company Limited and other reliable third parties to accord the credit rating included the unaudited draft accounts for FYE15, audited annual financial statements for FYE14 (plus four years of audited comparative numbers), full year detailed budget financial statements for FYE16, the current year reinsurance summary, statutory returns for FYE15 and other related documents.
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.
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. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’|
|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.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|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. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|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.|
|Solvency||With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.|
|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. The process also includes rejection of those risks that do not qualify.|
GCR accords an initial rating of A-(ZA) to Western National Insurance Company Limited; Outlook Stable