GCR affirms Goldstar Insurance Company Limited’s rating at A+(UG); Outlook Stable.
Johannesburg, 03 July 2017 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Goldstar Insurance Company Limited at A+(UG), with the outlook accorded as Stable. The rating is valid until June 2018.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Goldstar Insurance Company Limited (“Goldstar”) based on the following key criteria:
Goldstar’s risk adjusted capitalisation is viewed to be very strong, underpinned by well contained exposure to insurance and market risks. In this respect, the insurer’s international solvency margin equated to a very high 322% at FY16 (FY15: 363%). Sound internal capital generation is likely to sustain robust risk adjusted capital adequacy over the rating horizon.
Earnings have remained at very strong levels throughout the review period, supported by robust underwriting profitability. In this respect, the insurer’s five year aggregated underwriting margin equated to 37% (FY16: 39%; FY15: 45%). Very strong underwriting profitability was predominantly a function of a well contained net incurred loss ratio, coupled with very favourable net commission recoveries. GCR views the insurer’s demonstrated track record of underwriting profitability as indicative of elevated earnings capacity going forward. The maximum net deductible per risk and event has been maintained at a very conservative level. Reinsurance arrangements are placed with fairly well rated counterparties, containing reinsurance risk at a very low level.
The liquidity profile is viewed to be strong, supported by very strong liquidity metrics. In this respect, key liquidity measures registered within very strong ranges, albeit evidencing a reduction from historical levels following a substantial dividend pay-out in FY16. Cash coverage of net technical liabilities equated to a very strong 1.9x at FY16 (FY15: 4x), while the claims cash cover ratio registered at a high 54 months (FY15: 86 months). GCR expects liquidity metrics to remain within a very strong range over the rating horizon, underpinned by strong operating cash flow generation, and supported by management’s plans to place retained funds in liquid assets. While note is taken of the insurer’s efforts to reduce single counterparty exposure, banking counterparty concentration remains elevated, given that the majority of cash on hand and fixed deposits are placed with two unrated banks.
Goldstar’s competitive positioning is moderately strong, and this is expected persist over the rating horizon. The insurer reflects a market share of 5.4%, and a relative market share of 1.1x. This is supported by a fairly well diversified gross earnings stream. Nonetheless, the risk base is heavily geared towards motor business, which accounted for 68% of net premium volumes in FY16 (FY15: 47%; FY14: 74%). However, this is partly offset by the low product risk associated with this line. Furthermore, certain specialist lines of business, while remaining relatively constrained on a net premium basis, offer the insurer relevant diversification benefits.
Upward movement of the rating or outlook could develop if the insurer notably reduces banking counterparty exposure, while maintaining risk adjusted capitalisation, liquidity metrics and profitability at very strong levels. Furthermore, an enhancement in the business profile (by way of increased market share and earnings diversification) may result in positive rating movement. Conversely, the rating could be downgraded if the insurer were to exhibit a material weakening in risk adjusted capitalisation, regulatory capital and/or liquidity metrics. Furthermore, a sustained weakening in asset quality as a result of further dividends could result in negative rating pressure.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (May 2007)|
|Claims paying ability: A (UG)|
|Last rating (June 2016)|
|Claims paying ability: A+(UG)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Zwivhuya Mukosi|
|Sector Head: Insurance Ratings||Junior Credit Analyst|
|(011) 784 – 1771||(011) 784 – 1771|
|Sector Head: Insurance Ratings|
|(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Goldstar Insurance Company Limited rating reports, 2007-2016
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.
Goldstar 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 Goldstar Insurance Company Limited with no contestation of the rating.
The information received from Goldstar Insurance Company Limited and other reliable third parties to accord the credit rating included:
- The 2016 audited annual financial statements
- 4 years of comparative audited numbers
- Unaudited interim results to 31 March 2017
- Budgeted financial statements for 2017
- 2017 reinsurance cover notes
- Other related documents.
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capitalisation||The provision of capital for a company, or the conversion of income or assets into capital.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its risks.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|International Scale Rating (“ISR”)||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liquidity||The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short Term||Current; ordinarily less than one year.|
|Solvency||With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.|
|Statutory||Required by or having to do with law or statute.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|Underwriting||The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a more detailed glossary of term, please click here
GCR affirms Goldstar Insurance Company Limited’s rating at A+(UG); Outlook Stable.