Johannesburg, 09 May 2017 — 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 rating is underpinned by Clientèle Life’s strong earnings capacity, with the five year average operating margin equating to 35% and corresponding return on average equity registering at 55%. GCR expects the insurer to continue to evidence earnings strength, given the favourable product profiles and well managed cost structures.
Risk adjusted capitalisation is internally measured on a conservative basis after excluding the impact of negative reserves, and has been maintained at adequate levels over the review period. GCR expects capitalisation to remain sufficient to support the rating over the outlook horizon, given stability in earnings projections and a consistent dividend payment practice.
Clientèle Life exhibits a healthy level of premium diversification, with four product groupings each contributing in excess of 15% of recurring premiums in FY16. Furthermore, the use of differentiated distribution and media channels has underpinned a broad and diversified policyholder mix, while the insurer’s earnings profile benefits from contained product risk and the granular nature of the majority of exposures.
The insurer’s overall competitive position is impacted by its targeted business strategy and limited participation in more volatile annuity and investment related products, resulting in a modest share of overall life insurance industry premiums (0.3% in FY16, and around 1% of recurring NWP). The rating nevertheless recognises the company’s strong position and brand recognition within its chosen market segment and product groupings, as well as management’s track record of strategic execution.
Asset-liability matching is adequate, with matching 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. A rebalancing of the liquidity profile of assets addressed the previous asset shortfall in the less than 1 year maturity basket at FY15, with asset coverage of associated liabilities amounting to 1.1x at FY16. Note is, however, taken of the R414m exposure to non-investment grade financial assets at FY16, with shareholders’ exposure equating to 40% of capital, implying a degree of credit risk
The insurer has evidenced increasing withdrawal experience over the past 18 months, in the wake of the more challenging economic climate. Management has prioritised this as a key focus area over the rating horizon, with note taken of the insurer’s demonstrated capacity to manage this risk through the economic cycle.
Positive rating movement could follow a material strengthening in the insurer’s competitive position, while maintaining strong earnings capacity and rating sufficient credit protection measures. In contrast, a sustained weakening in risk adjusted capitalisation and/or prolonged asset-liability mismatch 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 2016)|
|Financial strength: A+(ZA)|
|Primary Analyst||Committee Chairperson|
|Susan Hawthorne||Yvonne Mujuru|
|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 2016
Clientèle Life rating reports, 2006 – 2016
RATING LIMITATIONS AND DISCLAIMERS
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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 to Clientèle Life Assurance Company Limited and other reliable third parties to accord the credit rating included:
- The latest audited financial statements to 30 June 2016
- Four years of comparative audited financial statements to 30 June
- Unaudited management accounts to 31 December 2016
- Full year budgeted financial statements to 30 June 2017
- Quantitative and qualitative statutory returns to 30 June 2016
- External group actuarial valuation to 30 June 2016
- 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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Annuity||A contract that provides a series of payments for a specified period of time which may or may not be contingent on the survival of the annuitant.|
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|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.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|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.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Interest Rate||The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.|
|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.|
|Operating Margin||Measures the efficiency of profit generation from investments and underwriting.|
|Policyholder||The person in actual possession of an insurance policy.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
For a detailed glossary of terms please click here
GCR affirms Clientèle Life Assurance Company Limited’s rating of A+(ZA); Outlook Stable.