Johannesburg, 11 Jul 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Constantia Insurance Company Limited of A-(ZA); with the outlook accorded as Stable.
Global Credit Ratings has accorded the above credit rating(s) on Constantia Insurance Company Limited based on the following key criteria:
Constantia, which commenced operations in 1952 under the name The Marine and Trade Insurance Company Ltd, is a 100% owned subsidiary of Conduit Risk and Insurance Holdings (Pty) Ltd. Conduit Capital Limited, which listed on the JSE in 1999, is the company’s ultimate holding company, with a current market capitalisation of R384m. Constantia operates within niche segments of the insurance market, complemented by personal lines and smaller commercial market offerings. UMAs are utilised as the predominant product distribution channel.
Capitalisation is viewed as moderately strong and commensurate with the current rating. In this regard, the international solvency improved under the interim period, from 44% as at 1HF12 to 53% at FYE12 and again to 57.6% as at 1HF13. Similarly, the CAR cover ratio strengthened to 1.3x at FYE12, compared with 0.9x as at March F12. Solvency metrics are expected to remain above GCR’s minimum threshold over the short to medium term. A positive rating factor is the insurer’s conservative investment strategy, which has provided protection to both capital and policyholder liabilities, whilst liquidity metrics have remained sound. Additionally, the insurer’s underwriting and net profits have consistently improved since posting a review period low in F10. Cognisance is, however, taken of the softening in underwriting profitability for the year to date, as a result of the motor book, albeit in line with the general industry trend. Constantia’s restructuring activities, through the streamlining of the UMA base and enhancement of underwriting practices, have improved operational efficiencies and led to a more focussed business mix. This notwithstanding, a constraining rating factor remains the highly concentrated portfolio, which increases underwriting and operational volatility. In this regard, the loss of one or more profitable portfolios, and the non-replacement thereof, would impede diversification efforts and negatively impact scale efficiencies. Reinsurance arrangements are placed with highly rated counterparties, with the highest net retention per risk limited to a low 1.7% of FYE12 capital, which is favourably considered.
Downward movement of the rating or outlook could develop should the international solvency margin fall below 45% on a sustained basis. A significant increase in revenue concentration could destabilise the business and would necessitate a rating review. Upward movement of the rating or outlook could develop as Constantia’s track record as a rated entity develops and the insurer establishes a stable underwriting profile, whilst growing and diversifying revenue streams. This needs to be accompanied by the maintenance of solvency at appropriate levels.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Mar/2006)|
|Claims paying ability: A-(ZA)|
|Last rating (Jun/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.
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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.
Constantia 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 Constantia Insurance Company Limited with no contestation of the rating.
The information received from Constantia 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, actuarial valuation statement, debtors provisioning policy document, ERM processes/framework (including catastrophe management framework), reserving methodologies, capital management policy.