Johannesburg, 22 July 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Compass Insurance 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 Compass Insurance Company Limited (“Compass”) based on the following key criteria:
Compass is a wholly owned subsidiary of Hannover Reinsurance Africa Limited (“Hannover Re Africa”), which is rated AAA(ZA) by GCR. Hannover Re Africa is 100% owned by Hannover Reinsurance Group Africa (Pty) Ltd, and the ultimate 100% holding company is Hannover Rück SE (“Hannover Rück”), which carries an international financial strength rating of AA-. GCR considers Compass to be strategically important to Hannover Re Africa, which is a key supporting factor to the insurer’s current rating.
Compass’ international solvency margin is expected to remain sound over the rating horizon, while statutory interim CAR cover has been maintained above the peer group average and is commensurate with the current rating. Capital adequacy is further supported by the strong reinsurance counterparties and moderate risk and event retention levels. Furthermore, the company’s conservative investment mix continues to underpin sound liquidity measures.
Compass has registered a high degree of net underwriting volatility and consistent underwriting losses over the review period, while gross profitability has deteriorated over the past two years. In this regard, the reduction in premium volumes in F14 has resulted in an elevated management expense ratio, with improved profitability premised on well contained gross claims experience going forward. The UMA-based business model is viewed to be exposed to a higher level of inherent risk, due to the outsourcing of certain key functions. Note is, however, taken of the investment in enhanced operational platforms, which allow for more efficient exchange of information and data, while simultaneously strengthening risk management and improving trend analysis.
An improvement in the insurer’s business profile that underpins a sustained strengthening in gross underwriting profitability could result in a positive rating movement in the longer term. This would be premised on the company maintaining other key rating criteria at currently sound levels. In contrast, continued weakening in technical profitability and/or capital adequacy that reduces the company’s strategic importance to Hannover Re Africa, or a loss of a key UMA that adversely impacts on longer term profitability prospects, could lead to a negative rating adjustment.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (Sep/2004)
Claims paying ability: A(ZA)
Last rating (Aug/2013)
Claims paying ability: A+(ZA)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013)
Compass rating reports, 2004-2013
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.
Compass 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 has been disclosed to Compass Insurance Company Limited with no contestation of the rating.
The information received from Compass Insurance Company Limited and other reliable third parties to accord the credit rating included the audited annual financial statements to December 2013 (plus four years of comparative numbers), full year detailed budgeted financial statements to December 2014, most recent year to date management accounts to March 2014, the 2014 reinsurance cover notes, qualitative and quantitative ST returns to December 2013, quarterly ST return to March 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.