Announcements

GCR accords an initial rating of BB+(ZA) to Emeritus Reinsurance Company South Africa Ltd; Outlook S

Johannesburg, 25 Aug 2014 — Global Credit Ratings has today assigned a national scale claims paying ability rating to Emeritus Reinsurance Company South Africa Limited of BB+(ZA); with the outlook accorded as Stable. Furthermore, Global Credit Ratings has assigned an initial international scale claims paying ability rating of BB to Emeritus Reinsurance Company South Africa Limited; with the outlook accorded as Negative.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Emeritus Reinsurance Company South Africa Limited (“Emeritus Re SA”) based on the following key criteria:

The reinsurer reflects a healthy level of risk-adjusted capitalisation in the initial years of the forecast period, with statutory CAR cover at 2x in F13. Capitalisation is expected to measure at an intermediate level over the medium term, in part limited by the low quantum of reserves on an absolute basis.

Emeritus Re SA plans to employ a conservative investment strategy over the rating horizon to support liquidity metrics. GCR views this as the appropriate means of limiting capital exposure during the start-up phase. Management have confirmed their intention to retain a pure cash strategy over the foreseeable future, and as such GCR expects liquidity metrics to remain sound in the medium term.

The reinsurer expects to register underwriting losses over the 2013-2015 forecast periods. This is largely a function of the absence of sufficient volumes being attained over the start-up phase in order to direct scale efficiencies into the expense base. The somewhat low growth targets, are however, viewed positively in the context of a cautious overall approach. Investment income is projected to remain relatively stable at R1m, while supporting net profitability by F15.

The competitive position will be limited over the start-up phase. Within this context, however, the reinsurer’s proposed business mix envisages that the spread of gross premiums will widen over the rating horizon.

Emeritus Re SA receives a non-proportional risk and catastrophe cover administered by the parent and placed with well rated international reinsurers, led by Trust International Insurance and Reinsurance Company (Bahrain).

The international scale outlook is impacted by the negative outlook currently assigned to the sovereign rating.

An upward movement of the rating may arise over the medium term following the reinsurer’s successful execution of the start-up strategy and subsequent establishment of sound revenue traction. Furthermore, a demonstrated ability to absorb start-up costs, allowing for medium term earnings capacity, while maintaining solvency and liquidity metrics at strong levels, may lead to an upgrade. Conversely, the rating could be pressured by revenue volumes being insufficient to support costs, as well as by high claims experiences impacting negatively on earnings. Excessive risk take-on relative to size and capacity, an increase in asset risk, or reduced solvency and liquidity metrics, may also result in a negative rating movement.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATING HISTORY
Initial/last rating (Aug/2014) Initial/last rating (Aug/2014)
Claims paying ability: BB+(ZA) Claims paying ability: BB
Outlook: Stable Outlook: Negative

ANALYTICAL CONTACTS

Primary Analyst
Yvonne Masiku
Analyst
(011) 784-1771
Ymasiku@globalratings.net

Committee Chairperson
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Insurance Companies (July 2014)
Criteria for Rating Newly Established and Start-Up Insurance Companies (July 2014)
Emeritus Reinsurance Company South Africa Limited report, 2014
RSA Short Term Insurance Bulletin 2001-2013.

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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings are for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

Emeritus Reinsurance Company South Africa 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 ratings have been disclosed to Emeritus Reinsurance Company South Africa Limited with no contestation of the ratings.

The information received from Emeritus Reinsurance Company South Africa Limited and other reliable third parties to accord the credit ratings included the latest audited annual financial statements for 2013 (plus four years of comparative numbers), latest independent auditors report to management for 2013, full year detailed budgeted financial statements for 2014, most recent year to date management accounts to March 2014, the current year retrocession cover notes 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.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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