Johannesburg, 11 Jun 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Centriq 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 Centriq Insurance Company Limited (“Centriq”) based on the following key criteria:
GCR considers Centriq to be strategically important to the Santam group, given its alignment with the group’s growth strategy. Furthermore, the reinsurance and capital support provided by Santam are viewed as key rating strengths.
Centriq is an established player in the cell captive segment, with a market share of approximately 19%. The insurer has maintained capital levels above internal and statutory interim measures, with both CAR coverage metrics expected to remain above 1x in the longer term. In this regard, note is taken of the R50m draw down facility provided by the shareholder, which enhances financial flexibility. Capitalisation levels are further supported by the high credit quality of reinsurance and investment counterparties, while the conservative investment composition supports adequate key liquidity metrics.
The underlying third party cells remain profitable relative to industry averages on a combined basis, although Centriq’s increasing exposure to underwriting risk at the promoter level has heightened earnings volatility. The insurer is exposed to credit risk stemming from the net liability position on certain cells. Note is, however, taken of the successful implementation of corrective measures, which have seen a significant reduction in the cell owners’ cumulative capital shortfall.
The ring-fenced nature of the cell ownership in terms of the underlying contracts, as well as the broad diversity of cells, was considered when assessing the total risk profile of the company. However legal enforceability of ring-fencing of the cells’ assets and liabilities is not conclusive. Furthermore, the impact of the discussion paper surrounding 3rd party cell captives released by the Financial Services Board remains uncertain.
Going forward, sustainable growth in profitable business lines, while maintaining sound capital at the cell, promoter and statutory levels could support an upward rating movement. In contrast, a sustained weakening in operating performance, which leads to significant erosion of promoter solvency and/or a revision to the strategic holding of Centriq within the Santam group, could trigger a rating downgrade. This could also result from regulatory changes that impact on profitability and scale.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (March/2006)
Claims paying ability: A(ZA);
Last rating (Jun/2013)
Claims paying ability: A+(ZA);
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013)
Summary Criteria for Rating Cell Captive Insurers (July 2013)
Centriq Insurance Company Limited rating reports (2006 – 2013)
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.
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 with no contestation of the rating.
The information received from Centriq and other reliable third parties to accord the credit rating included audited annual financial statements to December 2013 (plus four years of comparative numbers), full year detailed budgeted financial statements to December 2014, most recent year to date management accounts to April 2014, the current year reinsurance programme summary, the quantitative and qualitative statutory return for the full year to December 2013 and the quarterly statutory return to March 2014.
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.