Johannesburg, 31 Aug 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Absa Insurance Company Limited of AAA(ZA), with the outlook accorded as Stable. At the same time, GCR has withdrawn the rating. The withdrawal of the credit rating of Absa Insurance Company Limited is at the client’s request.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Absa Insurance Company Limited (“Absa Insurance”) based on the following key criteria:
GCR views Absa Insurance to be strategically important to Barclays Africa Group Limited (“Barclays Africa”), considering the complementary product offerings and sustained long term profitability. The ultimate majority shareholder is Barclays Bank PLC, which carries an international rating of A-. The rating is further supported by Absa Insurance’s strong competitive position. In this regard, the insurer is well placed to defend its leadership position in the bancassurance segment, as it continues to access business through the established client base and product distribution infrastructure of Absa Bank. This notwithstanding, the company will remain susceptible to economic factors that impact on underlying consumer demand for bancassurance products.
The rating is underpinned by sound levels of nominal and risk adjusted capital adequacy, while moderate risk retention levels contribute positively to Absa Insurance’s standalone credit profile. The conservative investment strategy limits capital exposure to market volatility, while underpinning sound liquidity metrics. Absa Insurance has maintained underwriting profitability through the cycle, with underwriting surpluses posted over the past 11 years. Despite the narrowing in the underwriting margin over the past two years, GCR considers Absa Insurance’s business model to be supportive of sustained earnings generation over the rating horizon.
The high degree of concentration to property business increases the insurer’s susceptibility to fire and weather related claims volatility, although note is taken of the diversification within this book. Furthermore, risk to revenue generation is mitigated by the large portion of business that is derived via Absa group channels.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (November 2004)|
|Claims paying ability: AA(ZA)|
|Last rating (September 2014)|
|Claims paying ability: AAA(ZA)|
|Primary Analyst||Committee Chairperson|
|Susan Hawthorne||Marc Chadwick|
|Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Absa Insurance Rating Reports, 2004 – 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
|Audited Financial Statements||Financial statements that bear the report of independent auditors (attesting to the financial statements’ fairness and compliance with generally accepted accounting principles).|
|Capital||The sum of money that is invested to generate proceeds.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its risks.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|Income Statement||A summary of all the expenditure and income of a company over a set period.|
|Interest||Money paid for the use of money.|
|Liquidity||The speed at which assets can be converted to cash.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long term||Not current; ordinarily more than one year.|
|Loss||The happening of the event for which insurance pays.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Rating Horizon||The rating outlook period|
|Rating Outlook||A rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|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.|
|Securities||Various instruments used in the capital market to raise funds.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Short Term||Current; ordinarily less than one year.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a detailed glossary of terms please click here
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.
The quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to Absa Insurance Company Limited with no contestation of the rating.
The information received from Absa Insurance Company Limited and other reliable third parties to accord the credit rating(s) included:
- Audited financial results as per Statements C1 and C2 of the statutory return to 31 December 2014
- Four years of comparative audited financial statements to 31 December
- Four years of comparative statutory returns to 31 December
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 affirms Absa Insurance Company Limited’s rating of AAA(ZA); Withdraws rating