Johannesburg, 24 Jun 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to ACE Insurance Limited of AA-(ZA); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to ACE Insurance Limited (“ACE SA”) based on the following key criteria:
ACE SA’s stand-alone rating is supported by strong risk adjusted capitalisation, with interim statutory CAR coverage in excess of 3x at FYE14. GCR expects the insurer to remain sufficiently capitalised relative to expected Solvency Assessment and Management (“SAM”) parameters, supported by the capital management strategy in place.
Liquidity metrics represent a rating strength, with cash coverage of both net technical liabilities and claims measured at very strong levels. GCR expects liquidity metrics to remain at strong levels, supported by the insurer’s conservative investment strategy, which also mitigates capital risk in the event of market volatility.
The insurer’s average gross underwriting margin equated to a high 15% over the review period. Strong gross profitability has been supported by strict underwriting disciplines that leverage off ACE Group’s (the collective consisting of ACE Limited and its core operating companies, referred to hereon as the “Group”) global capabilities and expertise, which GCR views to have been applied well within the local market. In this regard, GCR views the insurer’s track record of gross profitability as indicative of sustained earnings capacity going forward.
The insurer receives reinsurance support from the Group, with the majority of cessions placed with the Group (92% of cessions in FY14). The main group entity displays a strong international rating. In GCR’s view, the level of reinsurance support provides ACE SA with significant capacity relative to the size of its balance sheet, while demonstrating a strong level of integration of the insurer into the Group’s international structure. Additionally, ACE SA has a letter of credit to meet reinsurance obligations.
ACE SA’s business profile remains a relative rating constraint, given the limited market share (0.5% in FY14). Cognisance is taken of diversification efforts, which are aimed at increasing the weighting of energy, financial lines, casualty and accident & health in the risk base spread. In this regard, the insurer’s business mix is becoming fairly well spread across three lines of business, compared to the heavy reliance on property traditionally exhibited. In GCR’s view, the ability of the insurer to substantially strengthen its competitive positioning, by way of increased market share and enhanced earnings diversification, remains a key rating consideration.
The rating derives upliftment from implicit Group support. In this regard, the implied financial support provided by ACE INA Holdings Inc. (“AIH”), by way of a letter of comfort, and demonstrated capital support by ACE INA International Holdings Limited (“AIIH”) are viewed positively.
The stand-alone rating may be upgraded if ACE SA’s business profile evidences material development (by way of increased market share and enhanced earnings diversification), while underwriting profitability is maintained. Furthermore, a strengthening in the insurer’s strategic status within the Group may lead to positive rating movement. Conversely, the rating may be downgraded if ACE SA registers a substantial reduction in capitalisation and/or liquidity metrics. Negative rating action may also result if the letter of credit provided is withdrawn and/or amended, or if the strategic importance of the insurer to the Group weakens.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (August 2006)|
|Claims paying ability: A+(ZA)|
|Last rating (June 2014)|
|Claims paying ability: AA-(ZA)|
|Primary Analyst||Committee Chairperson|
|Yvonne Masiku||Marc Chadwick|
|Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies, updated July 2014
ACE Insurance Limited (“ACE SA”) rating reports, 2006 – 2014
RSA Short Term Insurance Bulletins 2001-2014
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.
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.
ACE Insurance 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 ACE Insurance Limited with no contestation of the rating.
The information received from ACE Insurance Limited and other reliable third parties to accord the credit rating included:
- Audited financial results as per 31 Dec 2014
- Unaudited interim results of as at 31 Mar 2015
- Four years of comparative audited numbers
- Budgeted financial statements for 2015
- The current year reinsurance cover notes
- Statutory returns as per 31 Dec 2014 and as at 31 Mar 2015, 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.
|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 more detailed glossary of terms/acronyms used as per GCR insurance glossary, please click here