Johannesburg, 23 June 2015 — Global Credit Ratings has today assigned an initial national scale claims paying ability rating to Mayfair Insurance Company Limited of BBB+(KE); with the outlook accorded as Positive. The rating is valid until June 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Mayfair Insurance Company Limited (“Mayfair”) based on the following key criteria:
Capitalisation is considered a key rating strength for Mayfair, with risk-based capital adequacy maintained at very strong levels over recent periods, supported by an improved earnings capacity and high profit retention. GCR expects capitalisation to remain elevated over the rating horizon.
The insurer displays a noticeably stronger underwriting profile relative to the start of the review period, following corrective measures applied in FY13. Mayfair reported a combined ratio of 82% in FY14 compared with 111% in FY13. The maintenance of strict underwriting and pricing disciplines, together with continued efforts to attain scale efficiencies, are viewed by GCR as key strategic objectives to sustain strong reported net earnings.
Liquidity has been maintained at sound levels. A relatively consistent investment strategy is expected to result in sustained adequate liquidity going forward. This notwithstanding, a level of asset risk exposure is evident, and is considered moderately high. In this regard, risky assets correspond to 1x FYE14 capital, and may increase further as the insurer plans to pursue additional unlisted strategic investments over the medium term.
Mayfair’s rating is constrained by its business profile, which reflects a limited market position. This notwithstanding, the company’s relatively property-focused business model has allowed for some degree of market profile differentiation and earnings diversification.
Future positive rating actions may result if the company achieves a sustained track record of consistent, profitable underwriting results and sustained strong risk-adjusted capitalisation. Downward rating pressure could arise through a reduction in risk-adjusted capitalisation. A more aggressive investment strategy, as well as a weakening in operating performance, may also reduce credit strength.
|NATIONAL SCALE RATINGS HISTORY|
|Initial / Last rating (June 2015)|
|Claims paying ability: BBB+(KE)|
|Sector Head: Insurance|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014
RATING LIMITATIONS AND DISCLAIMERS
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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.
Mayfair 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/s has been disclosed to Mayfair Insurance Company Limited with no contestation of the rating.
The information received from Mayfair Insurance Company Limited and other reliable third parties to accord the credit rating(s) included;
- Audited financial results as per 31 Dec 2014
- 4 years of comparative numbers
- Unaudited interim results as per 31 Mar 2015
- Budgeted financial statements for 2015
- Financial Condition Report for 2015
- The current year reinsurance cover notes
- Other non-public statistical information
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.
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.|
For a detailed glossary of terms utilised in this announcement please click here