Announcements

GCR affirms Clientèle Life Assurance Company Limited’s rating of A+(ZA); Outlook Stable

Johannesburg, 31 May 2018 — 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 27% 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 sound 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.

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 (0.4% in FY17, and around 1% of recurring NWP). The rating nevertheless recognises the company’s brand strength within its chosen market segment and product groupings, as well as management’s track record of strategic execution.

Clientèle Life exhibits a healthy level of premium diversification, with four product groupings each contributing in excess of 13% of recurring premiums in FY17. 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 (with the highest gross insurance benefit amounting to R10m).

The insurer’s asset-liability matching strategy aims to back products that have a guaranteed investment or savings component with the upfront purchase of assets that match the associated yield and maturities as closely as possible. Total investment assets covered total policyholder and financial liabilities by an unchanged 1.3x at FY17, while investment asset coverage of liabilities (undiscounted) equated to 1.1x of liabilities in the less-than-1-year bucket at FY17, implying sound levels of liquidity.

The insurer has evidenced increasing withdrawal experience over the past two years, in the wake of the more challenging economic climate and a once off system disruption experienced by one of the banks in 1H F18. The insurer’s ability to manage this risk is viewed to be a consideration over the rating horizon, particularly given challenges relating to bank debit order dispute systems and continuing economic pressure.

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, negative rating action could follow a sustained weakening in risk adjusted capitalisation, liquidity or asset-liability matching.

NATIONAL SCALE RATINGS HISTORY

   
Initial rating (June 2006)    
Financial strength: A+(ZA)    
Outlook: Stable    
     
Last rating (May 2017)    
Financial strength: A+(ZA)    
Outlook: Stable    

ANALYTICAL CONTACTS

Primary Analyst   Committee Chairperson
Susan Hawthorne   Yvonne Mujuru
Senior Credit Analyst   Sector Head: Insurance Ratings
(011) 784-1771   (011) 784-1771
susanh@globalratings.net   ymujuru@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Long Term Insurance Companies, updated May 2018

Clientèle Life rating reports, 2006 – 2017

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 audited financial statements to 30 June 2017
  • Four years of comparative audited financial statements to 30 June
  • Unaudited management accounts to 28 February 2018
  • Full year budgeted financial statements to 30 June 2018
  • Quantitative return to 30 June 2017
  • External group actuarial valuation to 30 June 2017
  • 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.
Benefits Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.
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.
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.
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.
Rating Horizon The rating outlook period
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.
Yield Percentage return on an investment or security, usually calculated at an annual rate.

For a more detailed glossary of terms, please click here

GCR affirms Clientèle Life Assurance Company Limited’s rating of A+(ZA); Outlook Stable

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