Announcements Insurance Rating Alerts

GCR affirms Chubb Insurance South Africa Limited’s national scale financial strength rating of AA(ZA); Outlook Stable

Rating action

Johannesburg, 24 July 2020 – GCR Ratings (“GCR”) has affirmed Chubb Insurance South Africa Limited’s (“Chubb SA”) national scale financial strength rating of AA(ZA), with a Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Chubb Insurance South Africa Limited Financial strength National AA(ZA) Stable Outlook

The rating action follows a reduction in the South African country and insurance sector risk assessments.

The South African country risk score was lowered to 7.0 from 7.5 previously, in a market alert released on the 27th May 2020. Click here to access the link. On 4th June 2020, the South African Insurance sector risk score was also lowered to 8.0 from 8.75 previously. Click here to access link.

Combined, the above country and sector risk scores comprise the operating environment score, which is a key input into GCR’s ratings.

Rating rationale

Chubb SA’s national scale financial strength rating was affirmed with a Stable Outlook, supported by the insurer’s very strong financial profile, which is expected to be sustained despite a level of downside risk associated with the poor economic climate. The insurer’s low market share continues to limit the assessment of the business profile, while presence in certain higher risk regional markets results in enhanced geographic diversification but a slight downward moderation in the operating environment assessment. The rating derives uplift from implied parental support from Chubb INA International Holdings Limited (“the group”), evidenced by strong operational and technical support, coupled with brand alignment.

Chubb SA’s risk adjusted capitalisation registered within a strong range over the review period supported by limited exposures to insurance and market risk, coupled with strong internal capital generation. As such, the regulatory Solvency Capital Requirement (“SCR”) coverage registered at a higher 2.2x at FY19 (FY18: 1.7x). Going forward, risk adjusted capitalisation is expected to be maintained at a rating appropriate level supported by net earnings and contained dividend distributions, with sufficient tolerance to withstand a level of earnings compression associated with the challenging operating environment.

Liquidity has been maintained at strong levels, supported by conservative asset allocation with the investments being placed in liquid assets. As such, coverage of net technical liabilities by stressed cash assets has been maintained around 2x over the review period while operational cash coverage equated to a very high 53 months at FY19 (FY18: 49 months). The liquidity assessment incorporates a slight downward adjustment to cater for a potential moderation resulting from lower investment income, although liquidity is expected to register within a strong range.

Earnings have been sound over the review period supported by a competitive loss ratio and high commission recoveries attributed to the favourable reinsurance structure. In this regard, the five-year average underwriting margin equated to 16% (FY19: 20%; FY18: 23%). Earnings are further supported by investment income amounting to ZAR22m in FY19 (FY18: ZAR22.5m), and return on revenue registering at 29% (FY18: 33%). Going forward, cognisance is taken of uncertainties arising from the COVID-19 pandemic that could lead to a moderation in investment income. On the other hand, the insurer’s earnings are expected to be supported by high reinsurance protection against a potential increase in claims, sustaining underwriting profitability at a strengthened level.

The insurer’s limited business profile impacts the rating negatively. The low market position has been unchanged over the review period, reflected by a market share and relative market share of around 0.4% and 0.4x respectively, attributed to the insurer’s focus on niche pockets of property and speciality products and selective underwriting. This notwithstanding, the insurer’s business mix is well diversified with three lines of business contributing materially to revenue and enhanced by a level of geographic diversification. The business profile is likely to remain largely unchanged consistent with the insurer’s strict underwriting.

Outlook statement

GCR expects cross cycle earnings to remain sound, while, risk adjusted capitalisation and liquidity are viewed to reflect sufficient buffers to withstand a level of moderation over the outlook horizon, after factoring in base case stresses associated with the poor economic outlook. The business profile is expected to remain stable, with the insurer expected to show a level of resilience to industry volume pressures given its target market and continued rates hardening across key portfolios.

Rating triggers

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 investment coverage of technical liabilities reduces below 2x or SCR coverage below 1.75x. Furthermore, negative rating action could follow if earnings register below expectations over a sustained period.

Analytical contacts

Primary analyst Susan Hawthorne Senior Analyst: Insurance Ratings
Johannesburg, ZA SusanH@GCRratings.com +27 11 784 1771
Secondary analyst Linda Matavire Analyst: Insurance Ratings
Johannesburg, ZA LindaM@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@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, May 2020
GCR Insurance Sector Risk Scores, July 2020

Ratings history

Chubb Insurance South Africa Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Claims paying ability Initial National A+(ZA) Stable Outlook August 2006
Financial Strength Last National AA(ZA) Stable Outlook November 2019

Risk score summary

Rating Components and Factors Risk score
Operating environment 14.50
Country risk score 6.75
Sector risk score 7.75
Business profile (3.00)
Competitive position (2.50)
Premium diversification (0.50)
Management and governance 0.00
Financial profile 2.75
Earnings 0.50
Capitalisation 1.25
Liquidity 1.00
Comparative profile 2.00
Group support 2.00
Government support 0.00
Peer analysis 0.00
Total Score 16.25

Glossary

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 2019;
  • Four years of comparative audited financial statements to 31 December
  • Full year budgeted financial statements for 2020;
  • Unaudited interim results to 30 June 2020;
  • Reinsurance cover notes for 2020; and
  • Other relevant documents.
image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.