Announcements Insurance Rating Alerts

GCR affirms Chubb SA’s national scale financial strength rating of AA(ZA); Outlook Stable

Rating Action

Johannesburg, 6th November 2019 – GCR Ratings (“GCR”) has affirmed Chubb Insurance South Africa Limited’s (“Chubb SA”) national scale financial strength (formerly claims paying ability) rating of AA(ZA), Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Chubb SA Financial strength National AA(ZA) Stable Outlook

GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for Chubb SA was placed ‘Under Criteria Observation’. GCR finalised the review for Chubb SA under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for Chubb SA has been reviewed in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.

Rating Rationale

Chubb SA’s rating is underpinned by a strong financial profile which reflects a high level of capital and liquidity strength and sound earnings. The insurer also benefits from implicit group support from its parent, Chubb INA International Holdings Limited, and the broader Chubb Limited group. These strengths are somewhat tempered by low market penetration and revenue scale in the insurer’s core operating jurisdiction (South Africa), high reliance on broker networks and limited, albeit developing, geographic footprint. The operating environment score reflects the insurer’s exposure to its core South African market and, to a lesser extent, geographic premium diversification to the Sub Saharan African region.

Capitalisation is viewed to be strong, with well contained underwriting and market risk supporting very strong risk adjusted capitalisation, although this is counterbalanced by the relatively small capital base in absolute terms (FY18: USD15.8m). Consistently positive underwriting performance supported review period capital growth (FY18: R227m; FY14: R137m), although the recent dividend payment of R20.1m, and similar proposed amount for FY19 is expected to limit excess reserve build up. This may lower risk adjusted capital metrics, with a potential impact on the insurer’s regulatory Solvency Capital Requirement (“SCR”) coverage. Nonetheless, GCR expects SCR coverage to remain sound and supportive of the rating going forward, although the small capital base will continue to limit upside potential on the factor assessment.

Strong liquidity is supported by a largely cash weighted investment portfolio. This, in conjunction with well contained claims and operating costs give rise to strong liquidity metrics. The insurer’s liquidity profile is expected to remain strong over the rating horizon on the back of continued investment conservatism and rationalised cost structure.

Earnings are viewed to be moderately positive, with strong underwriting margins somewhat balanced by volatility therein. GCR expects earnings to remain supportive to the rating going forward, although some moderation could emanate from persistently low to negative growth (placing upward pressure on the operating cost ratio: BGT19: 45%; FY18: 44.8%; FY17: 42.9%) and the likely reversion of the claims ratio to around 60% (FY18: 48%).

Chubb’s overall market position is viewed to be weak, with limited revenue scale and a low market share of 0.4% hindering competitive positioning. However, the insurer operates primarily in niche market segments within property and speciality products, with risk appetite commensurate with market conditions. Subdued economic conditions has seen premiums contract over the past two years, as Chubb SA reduced its exposure to certain high loss making portfolios, while adhering to strict underwriting protocols. Going forward, management expect premiums to normalise, citing a degree of rates improvement in the property portfolio and supported by new business in financial and casualty lines in FY19 (annualised year to date GWP growth to June of 9%). Nonetheless, the insurer’s market position is not expected to change materially over the medium term, although consistent premium traction could improve revenue scale over the longer term.

Premiums are somewhat diversified, with good product diversification across three lines of business with low product risk counterbalanced by limited geographic spread and high reliance on broker distribution networks. These dynamics are expected to remain in place over the medium term, restricting overall premium diversification.

While the insurer derives the bulk of its business in South Africa, it also generates a portion of premiums from a diverse range of sub Saharan African countries, amongst others. This is part of the insurer’s integrated business model where it participates on global group insurance programmes.

Chubb SA’s rating derives upliftment from strong implied parental support, given very strong levels of integration and strategic alignment, as well as implicit financial support.

Outlook Statement

The Stable Outlook reflects expectations that Chubb SA’s capitalisation, liquidity and earnings strength will continue to support a very strong financial profile, while the business profile will remain constrained over the outlook horizon.

Rating Triggers

The rating could be upgraded should there be a material improvement in the insurer’s competitive positioning, while maintaining very strong risk adjusted capitalisation and liquidity. Conversely, sustained weakening in earnings that could result in material deterioration in risk adjusted capitalisation and/or liquidity may result in negative rating action. Furthermore, downward rating pressure may also arise if the strategic importance of the insurer to the group diminishes.

Analytical Contacts

Primary analyst Vinay Nagar Senior Insurance Analyst
Johannesburg, ZA Vinay@GCRratings.com +27 11 784 1771
Committee chair Yvonne Mujuru Sector Head: Insurance Ratings
Johannesburg, ZA YMujuru@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 2019
GCR Insurance Sector Risk Scores, November 2019

Ratings History

Chubb SA

Rating class Review Rating scale Rating Outlook/Watch Date
Claims paying ability Initial National A+(ZA) Stable Outlook August 2006
Last National AA(ZA) Stable Outlook June 2018

Risk Score Summary

Risk score
Operating environment 15.75
Country risk score 7.25
Sector risk score 8.50
Business profile -3.00
Competitive position -2.50
Premium diversification -0.50
Management and governance 0.00
Financial profile 3.00
Earnings 0.50
Capitalisation 1.25
Liquidity 1.25
Comparative profile 2.00
Group support 2.00
Peer analysis 0.00
Total Score 17.75

Glossary

Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
Capital Adequacy A measure of the adequacy of an entity’s capital resources in relation to its risks.
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.
Investment Portfolio A collection of investments held by an individual investor or financial institution.
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.
Market Risk Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.
National Scale Rating (“NSR”) National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Current; ordinarily less than one year.
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.
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.
Underwriting Margin Measures efficiency of underwriting and expense management processes.

Salient Points of Accorded Rating

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 the 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 Chubb Insurance South Africa Limited. 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.

Chubb Insurance South Africa Limited participated in the rating process via telephone conference, 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 Chubb Insurance South Africa Limited and other reliable third parties to accord the credit rating included:

  • Audited financial statements to 31 December 2018;
  • Four years of comparative audited financial statements to 31 December;
  • Full year budgeted financial statements to 31 December 2019;
  • Unaudited management accounts to 30 June 2019;
  • Other relevant documents


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