Johannesburg, 01 Sep 2014 — 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.
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 (Negative outlook).
The rating is supported by Absa Insurance’s strong competitive position. In this regard, the insurer is well positioned 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.
International solvency has been maintained within a relatively narrow band of between 45% and 55% throughout the review period, and is expected to remain adequate over the rating horizon.
The insurer has maintained underwriting profitability through the cycle, with underwriting profits posted in each of the last ten years. Despite the narrowing in the underwriting margin recently, GCR considers the insurer’s business model to be supportive of through-the-cycle underwriting profitability over the rating horizon.
The conservative investment strategy limits capital exposure to market volatility, while underpinning sound liquidity metrics. Furthermore, the low level of risk retention and high credit quality of participating reinsurers are positive rating factors.
The insurer’s high degree of concentration to property business increases its susceptibility to claims volatility, although note is taken of the diversification within this book.
The insurer’s current rating is at the rating ceiling. Downward pressure on the rating could occur if the level of implied support from the parental structure were to weaken, or the financial strength of the parent company were to deteriorate significantly. Furthermore, on a stand-alone basis, a sustained weakening in solvency or liquidity measures could lead to negative rating action.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (Nov/2004)
Claims paying ability: AA(ZA)
Last rating (Oct/2013)
Claims paying ability: AAA(ZA)
Sector Head: Insurance
Sector Head: Corporate Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (Updated July 2014)
Absa Insurance Company Limited rating reports, 2004-2013
RSA Short Term Insurance Bulletin 2001-2013.
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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Absa 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 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 the latest audited annual financial statements for 2013 (plus four years of audited comparative numbers), latest independent auditor’s report to shareholders for 2013, full year detailed budgeted financial statements for 2014, unaudited year to date management accounts to June 2014, the current year reinsurance summary, statutory returns for 2013 and 1H 2014, 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.
GCR affirms Absa Insurance Company Limited’s rating of AAA(ZA); Outlook Stable.