|Rated entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|Chubb Insurance South Africa Limited||Financial strength||National||AA(ZA)||Stable Outlook|
The rating reflects a strong financial profile, partially offset by a limited business position. This is complemented by implicit group support from Chubb INA International Holdings Limited (“the group”), noting a high level of integration into the group’s business model.
Earnings are assessed as sound and competitive, despite a moderation registered in FY20 due to COVID-19 related claims. In this respect, the net incurred loss ratio registered at 70% (FY19: 58%), which was partly offset by a lower operating expenses ratio of 35% (FY19: 49%), benefiting from lower travel and marketing related costs. Notwithstanding a moderation in the underwriting margin to 14% in FY20 (FY19: 20%; review period average: 18%), we expect earnings to recover to historical levels, underpinned by prospects of claims and operating expense normalisation over the rating horizon.
Risk adjusted capitalisation was maintained within a strong range over the review period, supported by a large capital base, catering for the well contained exposures to insurance and market risks. Following earnings moderation emanating from the COVID-19 exposure, the regulatory Solvency Capital Requirement (“SCR”) coverage reduced to 1.8x at FY20 (FY19: 2.2x), although this is expected to recover to historical levels in FY21, supported by internal capital generation and contained dividend distributions.
Liquidity is viewed as strong, underpinned by a large and conservative investment portfolio. Accordingly, cash and stressed financial assets covered net technical liabilities by around 2.0x over the past two years, while coverage of operational cash requirements was maintained above 40 months. Liquidity metrics are expected to be maintained within a similar range over the rating horizon, supported by a large asset portfolio and expected rebound in earnings.
Despite registering strong review year premium growth of 33%, the underwriter’s market position is credit negative, with market and relative market share remaining limited at 0.5% and 0.4x (FY19: 0.4% and 0.3x), respectively. This notwithstanding the insurer’s business mix is well diversified with three lines of business contributing materially to GWP, furthered by some level of geographic diversification outside the primary market. Going forward, the business profile is expected to remain unchanged, reflecting a level of resilience to economic pressures given the insurer’s target market and continued rates hardening in key portfolios.
The Stable Outlook reflects the expected recovery in earnings to historical levels, while risk adjusted capitalisation and liquidity metrics may be maintained within a strong range. The business profile is likely to remain restrained over the outlook horizon given the insurer’s comparatively small scale, although this may continue to be partially offset by geographic and product diversification.
The rating may be upgraded on an improvement in market position while maintaining strong risk adjusted capitalisation and liquidity. Conversely, we could lower the rating if there is sustained moderation in earnings, negatively impacting risk adjusted capitalisation and liquidity.
|Primary analyst||Linda Matavire||Analyst: Insurance Ratings|
|Johannesburg, ZA||LindaM@GCRratings.com||+27 11 784 1771|
|Committee chair||Tichaona Nyakudya||Senior Analyst: Insurance Ratings|
|Johannesburg, ZA||TichaonaN@GCRratings.com||+27 11 784 1771|
Related criteria and research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Insurance Companies, May 2019|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, June 2021|
|GCR Insurance Sector Risk Scores, April 2021|
Chubb Insurance South Africa Limited
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Claims paying ability||Initial||National||A+(ZA)||Stable Outlook||August 2006|
|Financial strength||Last||National||AA(ZA)||Stable Outlook||July 2020|
Risk score summary
|Rating components and factors||Risk score|
|Country risk score||6.75|
|Sector risk score||7.75|
|Management and governance||0.00|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Primary Market||The part of the capital markets that deals with the issuance of new securities.|
|Property||Movable or immovable asset.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|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.|
|Release||An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Securities||Various instruments used in the capital market to raise funds.|
|Security||One of various instruments used in the capital market to raise funds.|
|Senior||A security that has a higher repayment priority than junior securities.|
|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.|
|Technical Liabilities||The sum of Net UPR and Net OCR IBNR.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
|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.|
|Upgrade||The rating has been raised on its specific scale.|
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to the rated entity. 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. The rated entity participated in the rating process via virtual management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The information received from the rated entity and other reliable third parties to accord the credit rating included:
- Audited financial results as at 31 December 2020;
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements for 2021;
- Unaudited interim results to 31 March 2021;
- Reinsurance cover notes for 2021; and
- Other relevant documents.