Announcements

GCR affirms Centriq Insurance Company Limited’s rating of AA-(ZA); Outlook Stable.

Johannesburg, 26 June 2017 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Centriq Insurance Company Limited of AA-(ZA), with the rating outlook accorded as Stable.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Centriq Insurance Company Limited (“Centriq”) based on the following key criteria:

Centriq’s rating is underpinned by its strong standalone credit profile, coupled with support derived from the Santam group. In this regard, GCR considers Centriq to be strategically important to the Santam group, given the parent’s strategic focus on growing market share in the specialist lines segment, as well as its material participation on the reinsurance programme. This is reinforced by the risk management oversight provided by the shareholder, with group enterprise risk management (“ERM”) policies having been incorporated into the company’s management and reporting functions.

The insurer exhibits a strong competitive profile, supported by its material share of the cell captive market. Furthermore, the specialised nature of the business model is relatively difficult to replicate from start-up, providing a competitive edge.

Capitalisation is viewed to be sound, with risk adjusted capital managed in line with the regulatory minimum, as well as internal targets. The financial flexibility afforded by the capital drawdown facility, made available by Santam, is favourably viewed as a mechanism supporting capital strength. Going forward, Centriq aims to maintain its current level of credit strength through ongoing containment of capital shortfalls in the cells, and managing promotor participation in line with risk adjusted return benchmarks.

Earnings capacity is viewed to be strong, supported by stringent risk acceptance and a fee based operating structure that facilitates high margin attainment. In this regard, Centriq continues to achieve robust ROaE margins, in line with group expectations. This trend is likely to be sustained over the medium term.

Centriq continues to display healthy levels of liquidity (on both an audited and statutory basis). In this regard, cash and interest bearing investments covered technical liabilities and preference shareholders funds by a stable 1.1x. The metric has consistently been maintained above 1x throughout the review period. Liquidity is expected to trend within a similarly healthy range over the medium term, underpinned by the continuation of conservative investment allocations.

Cognisance is taken of the inherent exposure to volume volatility in the cell captive environment, given the portfolio nature of the arrangements and attrition associated with maturing books of business. In this regard, the challenging economic environment could result in a higher degree of business churn, as clients face increasing competition in the more commoditised lines of business and potential calls for re-capitalisation. Furthermore, possible regulatory changes could impact on the company’s strategic direction over the medium term.

A rating upgrade could arise from a strengthening in competitive positioning (supported by growth into profitable business lines over the medium term) and enhanced risk adjusted capitalisation. A sustained weakening in operating performance that leads to erosion of promoter solvency, with a simultaneous reduction in shareholder capital support, could result in negative rating action. This could also be triggered by a weakening in asset quality or liquidity levels.

NATIONAL SCALE RATINGS HISTORY
 
Initial rating (March 2006)
Claims paying ability: A(ZA)
Outlook: Stable
 
Last rating (June 2016)
Claims paying ability: AA-(ZA)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Vinay Nagar
Credit Analyst
(011) 784-1771
vinay@globalratings.net
 
Committee Chairperson
Yvonne Mujuru
Sector Head: Insurance Ratings
(011) 784-1771
ymujuru@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2016

Criteria for Rating Cell Captive Insurance Companies, updated July 2016

Centriq rating reports, 2006-2016

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.

Centriq 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 Centriq Insurance Company Limited with no contestation of the rating.

The information received from Centriq Insurance Company Limited and other reliable third parties to accord the credit rating included:

  • The audited financial statements to 31 December 2016
  • Four years of comparative audited financial statements to 31 December
  • Full year budgeted financial statements to 31 December 2017
  • Quantitative statutory returns to 31 December 2016
  • Other relevant 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.

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.
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.
Drawdown When a company utilises facilities availed by a financial institution or an international lender there is said to be a drawdown of funds.
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.
Financial Flexibility The company’s ability to access additional sources of capital funding.
International Scale Rating LC 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.
Interest Money paid for the use of money.
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.
Preference Share Preference or preferred shares entitle a holder to a first claim on any dividend paid by the company before payment is made on ordinary shares. Such dividends are normally linked to an interest rate and not determined by company profits. Preference shares are normally repayable at par value in the event of liquidation. They do not usually carry voting or pre-emptive rights. Preference shares can be redeemable or perpetual.
Portfolio All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.
Preference Share Preference or preferred shares entitle a holder to a first claim on any dividend paid by the company before payment is made on ordinary shares. Such dividends are normally linked to an interest rate and not determined by company profits. Preference shares are normally repayable at par value in the event of liquidation. They do not usually carry voting or pre-emptive rights. Preference shares can be redeemable or perpetual.
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.
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.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
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.
Upgrade The assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade.
   

For a detailed glossary of terms please click here

GCR affirms Centriq Insurance Company Limited’s rating of AA-(ZA); Outlook Stable.

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