Johannesburg, 4 September 2017 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Bryte Insurance Company Limited of A+(ZA), with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Bryte Insurance Company Limited (“Bryte Insurance”) based on the following key criteria:
Bryte Insurance is viewed to exhibit moderately strong risk adjusted capitalisation, underpinned by contained underwriting risk and conservative investment allocation. Capital is managed within an internal target band of 1.2x to 1.4x based on the proposed Solvency Assessment and Management (“SAM”) standard formula (FY16: 1.4x), implying that capitalisation will be maintained over the rating horizon. This is premised on well managed growth and curtailment of net profit leakage. The high quality of existing reinsurance counterparties and conservative risk and event retention levels contribute positively towards Bryte Insurance’s financial profile.
The insurer’s investment portfolio remains heavily weighted towards cash and interest bearing securities. Accordingly, the insurer evidences strong liquidity, with coverage of net technical provisions (including fixed income instruments) equating to 2.1x at FY16. The investment composition is not expected to change materially over the medium term, supporting GCR’s expectation of sustained strong liquidity levels.
Underwriting profitability represents a key rating weakness, with the insurer having registered deficits throughout the review period (cumulatively: R1.9bn). This has been a function of an elevated net incurred loss ratio, and exacerbated more recently by restructuring and integration costs associated with the change in shareholding. Following implementation of key strategic initiatives, the company plans to break even at the underwriting line (excluding any integration costs and after normalising for catastrophe claims) in FY17. As such, the ability of the insurer to successfully implement systems and bed down operations, resulting in a higher degree of consistency in underwriting profitability, remains a key rating consideration. Note is further taken of the weakening in the insurer’s competitive profile over the duration of the review period, which serves as a relative constraint to the rating.
The insurer’s standalone credit profile is viewed to benefit from implied shareholder support. Implied support stems from the fact that Fairfax Financial Holdings Limited has indicated its objective to hold Bryte Insurance over the long term. Furthermore, the shareholder maintains a sum of USD1bn in unencumbered assets to be used in the event that any of its subsidiaries are under financial stress or failing to meet regulatory requirements.
Upward rating action could be realised over the medium to longer term should the insurer demonstrate a sustained strengthening in earnings capacity. This would need to be supported by risk adjusted capitalising and/or liquidity registering within strong ranges. Conversely, the rating may be downgraded should earnings fall below expectations and/or in the event of a reduction in capitalisation and/or liquidity.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (July 2001)|
|Claims paying ability: AA(ZA)|
|Last rating (February 2017)|
|Claims paying ability: A+(ZA)|
|Primary Analyst||Committee Chairperson|
|Munyaradzi Mushure||Yvonne Mujuru|
|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 2017.
Zurich Insurance Company South Africa Limited rating reports, 2001 – 2016.
RSA Short Term Insurance Bulletins, 2001-2016.
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.
Bryte 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 Bryte Insurance Company Limited with no contestation of the rating.
The information received from Bryte Insurance Company Limited and other reliable third parties to accord the credit rating included:
- Audited financial results to 31 December 2016
- Four years of comparative financial statements to 31 December
- Unaudited interim results to 30 June 2017
- Budgeted financial statements to December 2017
- The current year reinsurance programme summary
- Quantitative statutory returns to December 2016
- Other relevant company specific information
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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|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.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its risks.|
|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.|
|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.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|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.|
|International Scale Rating (“ISR”)||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|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.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|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.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short Term||Current; ordinarily less than one year.|
|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.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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 Bryte Insurance Company Limited’s rating of A+(ZA); Outlook Stable.