Global Credit Ratings has accorded the above credit rating(s) on Compass Insurance Company Limited based on the following key criteria:
Compass Insurance Company Ltd (“Compass”) is a niche short term insurer, writing exclusively through a well diversified base of specialist underwriting management agencies (“UMAs”). The company is wholly owned by Hannover Reinsurance Africa Limited (“Hannover Re Africa”), which is a 100% owned subsidiary of Hannover Rückversicherung SE (international FSR rating of AA-).
A major supporting factor to the rating is the 100% ownership of Compass by Hannover Re Africa, with the insurer receiving significant technical and reinsurance support from its parent company rated AAA(ZA) (triple A) by GCR. This is further supported by the capital adequacy ratios, which are considered to be relatively strong and supportive of the current rating. In this regard, statutory CAR coverage equates to a comparatively strong level, supportive of the insurer’s stand-alone financial profile. The insurer adopts a conservative stance on the investment portfolio, which was supportive of the sound liquidity metrics and a consideration in the rating formation. Compass has, however, registered a high degree of net underwriting volatility over the review period. As such, the insurer’s financial profile is weakened by the absence of an established track record of core profit generation. A higher delivery cost base is associated with this business model, which is further impacted by the absence of scale efficiencies. Note is, however, taken of the somewhat offsetting impact of the delivery cost structure, which is linked to the loss experience. 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. Compass has, however, demonstrated strong risk controls that contribute to a high level of risk mitigation pertaining to the business model, which limit residual risk. In this regard, note is taken of the operational platforms allowing for more efficient exchange of information and data, while simultaneously strengthening risk management and improving trend analysis.
An upward movement on the rating or outlook could develop as Compass’s track record as a rated entity develops, with the insurer growing market share, whilst maintaining profitability. In terms of a downward movement, this may arise if a material change in the relationship with the parent company, in the form of a change in shareholding structure and support, was evidenced. A significant loss of key UMAs impacting on scale and gross profitability may impact the rating negatively.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2004)|
|Claims paying ability: A(ZA)|
|Last rating (Sep/2012)|
|Claims paying ability: A+(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.
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/RATING-SCALES-DEFINITIONS. 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.
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/s 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 latest available audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, the current year reinsurance/retrocession cover notes, debtors provisioning policy document, ERM processes/framework (including catastrophe management framework), reserving methodologies, capital management policy.