Johannesburg, 11 Jun 2015 — Global Credit Ratings has today affirmed the national scale financial strength rating assigned to Clientèle Life Assurance Company Limited at A+(ZA); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Clientèle Life Assurance Company Limited (“Clientele Life”) based on the following key criteria:
Clientele Life’s rating is supported by a strong position and brand recognition in the direct life market. The long-established credentials and first to market advantage in chosen segments and channels demonstrate the insurer’s ability to innovate, while supporting longevity in the market. In GCR’s view, Clientele Life’s targeted growth strategy, and flexibility afforded by its two-pronged distribution approach, is likely to continue to sustain the insurer’s position in selected markets going forward.
Profitability has been measured at strong levels over the review period, with the average operating margin (34%) and return on equity (60%) well in excess of industry norms. This has been supported by favourable product profiles with well-managed cost structures, in tandem with key initiatives aimed at improving premium quality and stability. Going forward, GCR expects the insurer to continue to register strong profitability metrics, supported by cost efficient and competitive benefit structures.
Capitalisation is measured at moderately sound levels, largely supported by internal capital generation. This has resulted in CAR coverage being maintained at adequate levels, with excess capital above risk-based requirements supporting the rating. Cognisance has been taken of the reduction in risk-adjusted capitalisation at FYE14 (2x) relative to historical averages (3x), albeit remaining sufficient to support the rating.
In view of African Bank Limited’s (“ABL”) deteriorating financial position during the 2014 financial year, the insurer reviewed its shareholders’ exposure to ABL and consequently fair valued its zero coupon fixed deposits of R284 million in ABL at the year end. This resulted in a charge to the Statement of Comprehensive Income of R31m (after-tax effect of R23m). This has been allowed for in the embedded value (“EV”) results as at 30 June 2014, and gave rise to a corresponding reduction in the EV.
Asset liability matching risk is considered to be well managed, given the upfront purchase of investments with terms and interest rates that match the liabilities associated with guaranteed investment business. The credit risk associated with these balances is considered to be relatively low, given the majority placement with highly rated South African counterparties, albeit that the ABL exposure may also have a partially negative impact on these metrics.
Withdrawal ratios have exhibited a certain degree of volatility. Nevertheless, management remains committed to monitoring withdrawal patterns and revising experience assumptions. In GCR’s view Clientele Life has evidenced a strong track record of strategic implementation and demonstrated a high level of technical expertise, which is supported by the proactive steps taken to address key risk factors (including volatile withdrawal rates).
The rating may be upgraded if a significant improvement in the business profile and enhanced earnings diversification was evidenced, accompanied by a substantial strengthening in risk-adjusted capitalisation. Conversely, the rating may be downgraded if capital adequacy falls below expectations. Furthermore, a significant loss of market share or a sustained poor operating performance could result in negative rating action.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (June 2006)|
|Financial strength: A+(ZA)|
|Last rating (May 2014)|
|Financial strength: A+(ZA)|
|Primary Analyst||Committee Chairperson|
|Yvonne Masiku||Marc Chadwick|
|Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Life Assurance Companies, updated July 2014
Clientèle Life Assurance Company Limited (“Clientèle Life”) rating reports, 2006-2014.
RSA Life Assurance Bulletins, 2013-2014.
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
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.
Clientèle Life Assurance 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 Clientèle Life Assurance Company Limited with no contestation of the rating.
The information received from Clientèle Life Assurance Company Limited and other reliable third parties to accord the credit rating included:
- The latest available audited annual financial statements to June 2014
- Four years of comparative audited numbers,
- Full year detailed budget financial statements to June 2015
- Year to date management accounts to March 2015
- The 2014 actuarial valuation report
- The life report to December 2014
- LT statutory annual returns to June 2014 and other related documentation.
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Actuarial||Having to do with insurance mathematics.|
|Assets||The items on the balance sheet of the insurer which show the book value of property owned.|
|Assurance||Terminology used to describe life insurance.|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Bond||A certificate issued by a government or corporation as evidence of a debt.|
|Capacity||The largest amount of insurance or reinsurance available from a company.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Insurance||A formal social device for reducing risk by transferring the risks of several individual entities to an insurer.|
|Insured||A person or organisation covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss||The happening of the event for which insurance pays.|
|Long term (“LT”)||Not current; ordinarily more than one year.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business. Also, the total securities owned by an insurer.|
|Provision||A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.|
|Rate||The pricing factor upon which the insurance buyer’s premium is based.|
|Rating||The statistical process by which insurers determine risks and pricing for the basic classes of insurance.|
|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.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|Securities||Evidences of a debt or of ownership, such as stocks, bonds, and checks.|
|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.|
|Statutory||Required by or having to do with law or statute.|
|Surplus||The excess of assets over liabilities.|
|Valuation||Estimation of the value of an item, usually by appraisal.|
For a detailed glossary of terms utilised in this announcement please click here