Johannesburg, 12 Nov 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Guardrisk Insurance Company Limited of AA(ZA); with the rating placed on Rating Watch.
Global Credit Ratings has accorded the above credit rating(s) on Guardrisk Insurance Company Limited based on the following key criteria:
Guardrisk Insurance Company Limited (“Guardrisk”) is a 100% held subsidiary of Guardrisk Holdings Limited, who in turn is a wholly owned subsidiary of the financial services group Alexander Forbes. More recently, Alexander Forbes and MMI Group announced the sale of Guardrisk Holdings to MMI Group. The transaction is subject to regulatory approvals by the Financial Services Board and competition authorities, with the rating placed on rating watch pending finalisation. Guardrisk pioneered the cell captive concept, introducing cell captives to the short-term insurance industry in 1993 and extended the structure to the life insurance industry in 1999.
The rating has been affirmed reflecting Guardrisk’s strong and sustained market position, sound capitalisation, consistent profit generation and conservative investment portfolio. Guardrisk’s market leading position within the cell captive and alternative risk transfer segment is supportive of the rating, with the insurer commanding a 55% market share of the cell captive industry. This is complimented by management’s high level of technical expertise within the cell captive arena. Furthermore, the cell captive has a long historic track record of profitability, supported by the stable and consistent fee income generation emanating from the premiums and assets under management. This is further supported by the investment income component and small portion of underwriting income relating to the direct business. The rating was also underpinned by the insurer maintaining sound levels of capitalisation, which following the most recent capital injections saw the statutory CAR cover at the licence level increase to 1.6x at FYE13, exceeding the 1.3x stipulated by management. Core capital coverage (excluding holding company loans) is to be maintained at a minimum of 1x risk based capital as calculated in the internal capital model. Cognisance is taken of the advancement of the internal capital model, which strengthens the capital management framework. The rating was further underpinned by the sizeable and highly conservative investment portfolio, which reflects high levels of liquidity. Given the inherent nature of the business model, Guardrisk is potentially exposed to credit risk relating to undercapitalised 3rd party cells. Note, is, however, taken of the fact that the risk based capital requirements under the internal solvency model makes allowances for the potential capital strain, as well as the diversified risk pool. The ring-fenced nature of the cell ownership as per the underlying contracts, as well as the broad diversity of cells was considered when assessing the total risk profile of the company. Cognisance is, however, taken of the fact that the legal enforceability of the ring-fenced nature of the assets and liabilities of each cell upon liquidation is not conclusive. Furthermore, the impact of the discussion paper surrounding 3rd party cell captives from the FSB remains uncertain.
Enhanced potential for financial flexibility may allow for upward ratings movement going forward. Furthermore, a notable enhancement in the insurer’s business profile, allowing for increased market share and diversification, while maintaining risk-based capital adequacy at sufficient levels, may also give rise to positive rating pressure. In terms of a downward movement, this may follow a material weakening in the insurer’s capital adequacy relative to regulatory and internal risk-based requirements, and/or a sustained weakening in the insurer’s overall financial profile. This could also be triggered by regulatory changes, impacting on profitability and scale.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Oct/2000)|
|Claims paying ability: AA(ZA)|
|Last rating (Oct/2012)|
|Claims paying ability: AA(ZA)|
|+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
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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.
Guardrisk 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 Guardrisk Insurance Company Limited with no contestation of the rating.
The information received from Guardrisk Insurance Company Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements for FYE13 (plus four years of comparative numbers), Statutory Return for FYE13 latest internal and/or external report to management, full year detailed budgeted financial statements for F14, most recent year to date management accounts till July F14, internal actuarial valuation statement, ERM processes/framework (including catastrophe management framework), capital management policy.
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.