Johannesburg, 26 May 2016 — Global Credit Ratings has today affirmed the national scale financial strength rating assigned to Clientèle Life Assurance Company Limited of 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 (“Clientèle Life”) based on the following key criteria:
The insurer has a strong position and brand recognition in the direct life market. The company’s competitive advantages stem from its ability to innovate and early-mover advantage in the chosen markets and channels. In GCR’s view, Clientèle Life’s targeted growth strategy, and the flexibility afforded by the distribution approach, is likely to continue to sustain the insurer’s strong position in targeted market segments and product groupings.
Profitability has been sustained at robust levels over the review period, with the average operating margin registering at 34%, and return on equity amounting to 55%. 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 has been maintained at adequate levels, and is expected to remain sufficient to support the rating over the outlook horizon, given stability in earnings projections and a consistent dividend payment practice.
Asset-liability matching (“ALM”) risk is managed through the upfront purchase of investments with terms and interest rates that match the liabilities associated with guaranteed investment business as closely as possible. Note is, however, taken of the credit risk associated with the exposure to poorly rated African Bank Limited (“ABL”), with shareholders’ exposure to ABL equating to approximately 46% of capital at FYE15. In terms of liquidity and ALM, the lengthening in the maturity profile of the ABL deposits has resulted in Clientèle Life re-balancing their liquidity profile of assets to take this into account. Aside from the ABL exposures, the balance of liquid investments were placed with counterparties that carry short term credit ratings of A1-(ZA) or above.
Withdrawal ratios have moderated in recent years, while management remains committed to monitoring withdrawal patterns and revising experience assumptions. In GCR’s view, Clientèle Life has evidenced a strong track record of strategic implementation and demonstrated a high level of technical expertise. This view is supported by the proactive steps taken to address key risk factors (including withdrawal rates).
The rating may be upgraded if a significant improvement in the business profile and enhanced earnings diversification is evidenced, accompanied by a substantial strengthening in risk-adjusted capitalisation. A downward movement may arise if capital adequacy falls below current levels on a sustained basis. Furthermore, adverse developments relating to the ABL exposure could result in negative rating action over the medium term.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (June 2006)|
|Financial strength: A+(ZA)|
|Last rating (May 2015)|
|Financial strength: A+(ZA)|
|Primary Analyst||Committee Chairperson|
|Susan Hawthorne||Marc Chadwick|
|Senior Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Long Term Insurance Companies, updated July 2015
Clientèle Life rating reports, 2006 – 2015
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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Balance Sheet||Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Capital||The sum of money that is invested to generate proceeds.|
|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.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Creditworthiness||An assessment of a debtor’s ability to meet debt obligations.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|Equity||Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|Investment Income||The income generated by a company’s portfolio of investments.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Operating Margin||Measures the efficiency of profit generation from investments and underwriting.|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Return on Equity||ROE is the ratio of a company’s profit to its shareholders’ equity, expressed as a percentage.|
|Securities||Various instruments used in the capital market to raise funds.|
|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.|
|Upgrade||The assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade.|
For a detailed glossary of terms please click here
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 ratings included:
- The latest audited financial statements to 30 June 2015
- Four years of comparative financial statements to 30 June
- Unaudited management accounts to 31 December 2015
- Full year budgeted financial statements to 30 June 2016
- Quantitative and qualitative statutory returns to 30 June 2015
- External group actuarial valuation to 30 June 2015
- Internal company actuarial valuation to 30 June 2015 and 31 December 2015
- Other relevant documents
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.
GCR Affirms Clientèle Life Assurance Company Limited’s rating of A+(ZA); Outlook Stable