Global Credit Ratings has accorded the above credit rating(s) on Absa Insurance Company Limited (“Absa Insurance”) based on the following key criteria:
Absa Insurance is wholly owned by Absa Group, one of the largest banking institutions in South Africa. Absa Group (rated A- on an international scale; stable outlook) is in turn a subsidiary of Barclays Bank Plc. (UK), rated A+ on an international scale. The rating is supported by Absa Insurance’s strong competitive position. The group’s underlying client base provides Absa Insurance with a sizeable captive revenue stream, augmented by an extensive distribution force and strong franchise value. Furthermore, the banking arm’s penetration of the commercial (particularly agricultural) market allows for diversification in terms of product line and risk exposure. This notwithstanding, continued reliance on the growth of the mortgage book constrains premium development.
Absa Insurance has displayed a well-controlled capital management strategy throughout the review period, supported by an internal risk-based model that has been in place for a number of years. The international solvency margin is not forecast to reduce below 45%, which is supportive of the insurer’s current rating as per GCR’s solvency framework. Additionally, the conservative investment strategy limits capital exposure to market volatility, while underpinning sound liquidity metrics. Capitalisation levels are further supported by the low levels of risk retained for the insurer’s net account, with all reinsurance counterparties displaying high credit quality.
The competitive management expense ratio relative to the industry continues to support profitability, with improved efficiencies remaining a key focus of management in the medium term. This is supported by the containment of the loss ratio, although inherent cyclicality and rate pressures in certain lines remain a challenge. The insurer displays a high degree of concentration to homeowner’s comprehensive business, although note is taken of the favourable loss ratios exhibited by this book throughout the review period (supported by strong risk-based pricing models). Penetration of commercial segments has resulted in notable profit margin compression, with the insurer’s adjustment to the new underlying risk mix viewed as an important short to medium term objective.
The insurer’s current rating is at the rating scale ceiling. Downward pressure on Absa Insurance’s rating could occur if the level of implied support from the parental structure were to weaken, or the financial strength of the parent companies were to deteriorate significantly. Furthermore, on stand-alone basis, downward rating pressure would emanate from a substantial and sustainable weakening in solvency and liquidity metrics to levels outside of GCR’s parameters for the current band.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Nov/2004)|
|Claims paying ability: AA(ZA)|
|Outlook: Positive outlook|
|Last rating (Jun/2012)|
|Claims paying ability: AAA(ZA)|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
|Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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/RATING-SCALES-DEFINITIONS. 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 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/s 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 included the 2012 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, the current year reinsurance/retrocession cover notes, actuarial valuation statement, debtors provisioning policy document, ERM processes/framework (including catastrophe management framework), reserving methodologies, capital management policy.