Johannesburg, 30 Jun 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Coface South Africa Insurance Company Limited of AA+(ZA); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Coface South Africa Insurance Company Limited (“Coface ZA”) based on the following key criteria:
The insurer has strong capitalisation, with a statutory CAR cover at 1.7x and an international solvency margin at 90% in F13. Inclusive of the limited guarantee from Cofinpar, a 100% owned subsidiary of Compagnie Francaise d’Assurance pour le commerce Exterieur (“Coface SA”), which GCR views as supplementing capital in adverse operating conditions, capital strengthens considerably. GCR expects nominal and adjusted CAR cover to remain around similar levels going forward.
Coface ZA employs a highly conservative investment strategy, which supports strong liquidity metrics. No changes to the pure cash strategy are expected for the next 12 to 24 months, supporting high liquidity forecasts over the rating horizon.
The insurer continued to register underwriting profitability over the past four years on both gross and net bases. This is reflective of the insurer’s core capabilities in portfolio management and underwriting disciplines, which GCR views to be indicative of sustained earnings capacity through the cycle.
Coface ZA’s business profile reflects strong competitive positioning, with the insurer’s market share being maintained around 15%. This is partly offset by the high product risk emanating from the monoline focus on credit guarantee and the inherent cyclicality of the industry.
Reinsurance arrangements are placed internally with Coface SA. The high degree of reinsurance support underpins underwriting capacity, which is further fostered by the relationship with the group and franchise value. This also provides Coface ZA with business from key multinational clients, technical expertise and operational platforms.
The rating derives upliftment from the strong implicit support derived from Coface SA. This view is supported by high levels of strategic and operational alignment, success in supporting group objectives, and comparability of capital and risk management frameworks.
A demonstrated and meaningful increase in both market penetration and exposure diversification in the long term, while maintaining profitability and credit protection measures at similar levels could lead to an upgrade. Furthermore, a strengthening in Coface ZA’s strategic status within the Group may result in a positive rating movement. Conversely, a pronounced deterioration in liquidity and solvency metrics and material adjustment to exposures relative to existing protection measures could result in a negative rating movement. Furthermore, a downgrade may occur on the back of a negative revision to the rating of Coface SA, an amendment and/ or withdrawal of the guarantee or a change in the strategic importance of Coface ZA within the Group.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (Aug/2006)
Claims paying ability: AAA(ZA)
Last rating (Sep/2013)
Claims paying ability: AA+(ZA)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013)
Coface South Africa Insurance Company Limited rating reports, 2006 – 2013.
RSA Short Term Insurance Bulletin 2001-2013.
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.
Coface South Africa Insurance 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/s has been disclosed to Coface South Africa Insurance Company Limited with no contestation of the rating.
The information received from Coface South Africa Insurance Company Limited and other reliable third parties to accord the credit rating included the audited annual financial statements for FYE13 (plus four years of audited comparative numbers), latest independent auditor’s report to shareholders for FYE13, full year detailed budgeted financial statements for FYE14, unaudited year to date management accounts to March 2014, the current year reinsurance summary, statutory returns for FYE13 and 1Q F14, exposure summaries as at FYE 13 and April 2014 and other related documents.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
GCR affirms Coface South Africa Insurance Company Limited’s rating of AA+(ZA); Outlook Stable.