Global Credit Ratings has accorded the above credit rating(s) on Coface South Africa Insurance Company Limited based on the following key criteria:
Coface South Africa Insurance Company Limited (“Coface ZA”) was initially established as a specialist credit underwriting manager and has been operating in the South African market for more than 20 years. The insurer is a wholly owned subsidiary of Compagnie Francaise d’Assurance pour le commerce Exterieur (“Coface SA”), which is the third largest player in the international market for receivables management and trade credit insurance. The ultimate shareholder is Natixis, a leading French corporate and investment banking entity with a market capitalisation totalling €10.6bn.
Coface ZA’s rating reflects the guarantee provided by Cofinpar, a 100% owned subsidiary of Coface SA (international financial strength rating of AA-), as well as a letter of continuing support from the ultimate parent company. In conjunction with the stand-alone financial profile of the entity, the support framework in place translates into rating upliftment and equates to a AA+(ZA) national scale rating. Furthermore, the high degree of reinsurance support from Coface SA underpins underwriting capacity. This is further fostered by the relationship with the group and franchise value, which provides Coface ZA with business from key multinational clients, technical expertise and operational platforms. With respect to capitalisation, in light of the increased net retention under the quota share agreement, coupled with the dividend payment, the international solvency margin declined to 93% at FYE12 and is anticipated to decline further to 72% in F13. This notwithstanding, statutory CAR coverage is expected to remain around 2x going forward. Note is also taken of the capital flexibility given the reinsurance arrangement with the parent company. Given the stringent underwriting criteria applied, the insurer has remained profitable on a gross and net basis over the review period, which contributes to GCR’s favourable view of the insurer’s earnings capacity through varying operating environments. This is further supported by the various risk management mechanisms. Note is, however, taken of the volatility of the earned loss ratio and susceptibility to the underlying credit market, which is evidenced by the losses posted in F09. The insurer’s investment portfolio remains highly conservative, which underpins sound liquidity levels.
Upward movement on the rating or outlook could develop given demonstrated and meaningful market penetration over the long term, whilst maintaining current profitability and credit protection measures at similar levels. In terms of a downward movement, this may occur on the back of i) a downward revision to the rating of the guarantor, ii) an amendment or withdrawal of the guarantee, iii) a change in the strategic importance of Coface ZA as a rated entity, and/or iv) significant adjustments to exposures relative to existing protection measures. Furthermore, a pronounced deterioration in liquidity and solvency metrics relative to current levels could result in a negative rating movement.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Aug/2006)|
|Claims paying ability: AAA(ZA)|
|Last rating (Aug/2012)|
|Claims paying ability: AA+(ZA)|
|+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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 2012 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, unaudited year to date management accounts, the current year reinsurance cover notes and stop loss treaty, implicit letter of comfort, explicit guarantee, buyer exposures and limits.