Johannesburg, 26 October 2018 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Auto and General Insurance Company Limited of A+(ZA), with the outlook accorded as Stable. Global Credit Ratings has simultaneously withdrawn the rating.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Auto and General Insurance Company Limited (“A&G”) based on the following key criteria:
The rating considers A&G’s sound level of risk adjusted capitalisation, underpinned by limited underwriting risk and conservative asset allocation. GCR expects risk based capital strength to be sustained, given the capital management strategy in place.
Furthermore, liquidity metrics have been maintained at very strong levels, and represent a key rating strength. Cash coverage of net technical liabilities equated to 2.7x at FY18 (FY17 adjusted: 2.1x), while coverage of average monthly claims registered at 15 months (FY17: 13 months). GCR expects liquidity to remain very strong, given the insurer’s large investment portfolio and conservative asset allocation strategy.
A&G evidences a strong level of earnings capacity. The underwriting margin has averaged a healthy 7% over the review period (FY18: 5%), with key underwriting ratios evidencing a high level of stability. Earnings strength is further supported by a large fee based income component and sustainable stream of realised investment income. In this respect, adjusting for non-recurring fair value movements incurred between FY15 and FY17, the five year average return on net earned premiums registered at a strong 12% (FY18: 11%). GCR expects A&G’s earnings capacity to continue to register at a strong level, supported by underwriting stability and a large realised income component.
A&G’s business profile is assessed to be moderately strong. The insurer has a market share of 3% overall, and occupies a top tier position in the motor line of business (ranking in fifth place). Despite high concentration towards the motor class, the granular nature of the underlying risk exposures implies an inherently well diversified revenue base and provides for a level of earnings stability.
The rating withdrawal was due to commercial reasons. Accordingly, GCR will no longer provide ratings or analytical coverage of A&G.
|NATIONAL SCALE RATINGS HISTORY|
|Initial / last rating (November 2017)|
|Claims paying ability: A+(ZA)|
|Primary Analyst||Committee Chairperson|
|Susan Hawthorne||Yvonne Mujuru|
|Senior 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 May 2018.
RSA Short Term Insurance Bulletins, 2001-2017.
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.
Auto and General 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 Auto and General Insurance Company Limited.
The information received from Auto and General Insurance Company Limited and other reliable third parties to accord the credit rating included:
- Final unsigned financial statements to 30 June 2018
- Four years of comparative financial statements to 30 June
- Quantitative statutory returns to 30 June 2018
- The current year reinsurance programme summary
- Other relevant company specific information
The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Capital||The sum of money that is invested to generate proceeds.|
|Capitalisation||The provision of capital for a company, or the conversion of income or assets into capital.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|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.|
|Earned Premium||That part of the premium applicable to the expired part of the policy period, including the short-rate premium on cancellation, the entire premium on the amount of loss paid under some contracts, and the entire premium on the contract on the expiration of the policy. When a premium is paid in advance for a certain time, the company is said to “earn” the premium as the time advances.|
|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.|
|Fair Value||The fair value of a security, an asset or a company is the rational view of its worth. It may be different from cost or market value.|
|Investment Income||The income generated by a company’s portfolio of investments.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|Liquidity||The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|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
GCR affirms Auto and General Insurance Company Limited’s rating of A+(ZA), Withdraws rating