Global Credit Ratings has accorded the above credit rating(s) on Centriq Insurance Company (RF) Limited based on the following key criteria:
Centriq, established in 2004, is a specialist insurer in the cell captive and alterative risk transfer segment. The underwriting of traditional insurance risks (specialist and commodity classes) is achieved through a UMA and alternative distribution partnership model, which may or may not involve a cell captive structure. Alternative risk financing solutions are mostly provided through contingency policies and in some instances a fully capitalised cell captive solution. The insurer is a wholly owned subsidiary of Centriq Insurance Holdings Limited. Santam Limited (“Santam”), which listed on the JSE in 1964, is the company’s ultimate holding company and carries a market capitalisation of R21bn as at June 2013. Santam has been accorded a rating of AAA(ZA) by GCR. Centriq constitutes an important component of Santam’s specialist lines focus, accounting for approximately 12% of total GWP in F12 (on a group basis). Centriq’s strong position in the cell captive market and sustained profitability illustrate strategic strengths.
The rating was supported by Centriq’s established position as a top tier player in the cell captive and alternative risk transfer space, with an estimated market share of 17%. Furthermore, the reinsurance and capital support provided by Santam is expected to sustain growth in its targeted market segment over the medium to longer term, which is a key rating consideration. A significant factor underpinning this rating is the R50m draw down facility from Santam, which ensures that the minimum capital adequacy requirement remains above 1x. The implied capital support given the flexibility of this facility is favourably viewed. As such, going forward, promoter solvency is expected to remain at adequate levels to support the current rating. The insurer has consistently been profitable at the promoter level, supported by the relatively stable fee and investment income due to the growth in assets under management and the cell portfolio. Cognisance is, however, taken of the anticipated growth in risk assumption at the promoter level over the medium term, and the accompanying higher earnings volatility. The ring-fenced nature of the cell ownership as per the underlying contracts, as well as the broad diversity of cells, was considered when assessing the total risk profile of the company. Cognisance is, however, taken of the fact that the legal enforceability of the ring-fenced nature of the assets and liabilities of each cell is not conclusive. Furthermore, the impact of the discussion paper surrounding 3rd party cell captives released by the FSB remains uncertain.
In view of the business model and the externalised nature of capital support (from the cell owner) in the event of an adverse scenario, combined with the inconclusive nature of asset segregation under the cell captive structure, the claims paying ability rating has an implicit rating ceiling. In terms of a downward movement, the sustained weakening in the operating performance, which leads to a significant erosion of promoter solvency, with a simultaneous reduction in the shareholder capital support and/or a revision to the strategic holding of Centriq within the Santam group, could result in a downward movement of the rating. This could also be triggered by regulatory changes, impacting on profitability and scale.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Dec/2006)|
|Claims paying ability: A(ZA)|
|Last rating (Jul/2012)|
|Claims paying ability: A+(ZA)|
|+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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 (RF) 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/s has been disclosed to Centriq Insurance Company (RF) Limited with no contestation of the rating.
The information received from Centriq Insurance Company (RF) Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, the current year reinsurance/retrocession cover notes, actuarial valuation statement, debtors provisioning policy document, ERM processes/framework (including catastrophe management framework), reserving methodologies, capital management policy.