Johannesburg, 30 April 2015 — Global Credit Ratings has today assigned an initial national scale claims paying ability rating to Prosperity Lifecare Insurance Company Limited of A+(NA); with the outlook accorded as Stable. The rating is valid until 30 April 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Prosperity Lifecare Insurance Company Limited (“Prosperity Life”) based on the following key criteria:
The rating is underpinned by Prosperity Life’s strong representation in the medical insurance industry segment. In this regard, GCR views the company to be well placed to defend its strong competitive position, given its first to market status and access to comprehensive underwriting data, which is considered key to its business strategy.
The company’s low total expense base has supported very strong underwriting profitability relative to its peers. GCR expects the insurer to continue to achieve cross cycle underwriting profitability, given the attainment of critical mass and the lean operating cost structure. Capital adequacy remains sound on a nominal and risk adjusted basis, with net actuarial CAR cover expected to be maintained above 1.5x over the rating horizon. This is supported by the company’s robust income generating capacity and a well-defined dividend policy. Furthermore, Prosperity Life’s investment mix is well diversified and supportive of comfortable liquidity metrics, although a relatively large debtor balance implies a degree of credit risk.
Within the medical offerings, one product was identified to have a high retained exposure, which could lead to increased capital risk, although this has been well managed through stringent risk rating and underwriting over the past two years. A further risk in terms of premium concentration to two funds could increase risk to revenue generation. Note is taken of the evolving regulatory environment, which increases strategic uncertainty, while the transition to a risk based capital management framework is likely to place pressure on costs and human capital requirements for the industry as a whole.
Continued profitable growth and an increase in premium and capital scale could support a rating upgrade over the medium term. This would need to be accompanied by current levels of capital adequacy and liquidity. In contrast, a downward rating adjustment could be triggered by a sustained deterioration in underwriting profitability that adversely impacts on capitalisation or liquidity levels.
NATIONAL SCALE RATINGS HISTORY
Initial / Last Rating (April 2015)
Claims paying ability: A+(NA)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014.
RATING LIMITATIONS AND DISCLAIMERS
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GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Actuarial||Having to do with insurance mathematics.|
|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.|
|Benefits||Financial reimbursement and other services provided insured’s by insurers under the terms of an insurance contract.|
|Capacity||The largest amount of insurance or reinsurance available from a company.|
|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.|
|Cover||To include within the coverage of a contract of insurance.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Health Insurance||Protection, which provides payment of benefits for covered sickness or injury.|
|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.|
|Insured||A person or organisation covered by an insurance policy.|
|Insurer||The party to the insurance contract who promises to pay losses or benefits|
|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||The happening of the event for which insurance pays.|
|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.|
|Policyholder||The person in possession of an insurance policy.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rate||The pricing factor upon which the insurance buyer’s premium is based.|
|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.|
|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.|
|Surplus||The excess of assets over liabilities. Statutory surplus is an insurer’s or reinsurer’s capital as determined under statutory accounting rules. Surplus determines an insurer’s or reinsurer’s capacity to write business responsibility for only that portion of any risk, which exceeds the company’s established retentions.|
|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.|
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.
Prosperity Lifecare Insurance Company Limited participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Prosperity Lifecare Insurance Company Limited, with no contestation of the rating.
The information received from Prosperity Lifecare Insurance Company Limited and other reliable third parties to accord the credit rating(s) included the latest available audited annual financial statements to December 2013 (plus three years of comparative numbers), the unaudited management accounts to December 2014, latest internal and/or external report to management, the actuarial report to December 2014, full year detailed budgeted financial statements to December 2015, the 2015 reinsurance cover notes, and other relevant 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.