Johannesburg, 31 Mar 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Guardrisk Insurance Company Limited of AA(ZA); with the outlook accorded as Stable.
Global Credit Ratings has accorded the above credit rating to Guardrisk Insurance Company Limited based on the following key criteria:
Guardrisk Insurance Company Limited (“Guardrisk”) is a 100% held subsidiary of Guardrisk Holdings Limited, which was previously a wholly owned subsidiary of the financial services group Alexander Forbes. In November 2013, MMI Holdings Limited (“MMI”) and Alexander Forbes announced that MMI intended to purchase Guardrisk Holdings, subject to approval from the Financial Services Board and the South African competition authorities. Approval was subsequently granted by both authorities in early 2014, and the sales transaction came into effect on 3 March 2014.
Following GCR’s review of Guardrisk in the final quarter of 2013, the rating was placed on rating watch pending finalisation of the MMI acquisition. Subsequent to finalisation of the sales transaction, management has provided year to date accounts for the ten months to January F14, as well as an updated report on the internal risk based capital requirement, which was concluded in September F14. Management accounts indicate that year to date performance does not deviate materially from the F14 budget in proportional terms. Furthermore, assuming that there is not a substantial increase in the September risk based capital requirement, it is expected that CAR cover will remain above GCR’s requirement of 1x excluding holding company loans and 1.3x including holding company loans. Management has also indicated that the holding company loans were repaid at the end of February F14, but will nevertheless aim to keep CAR cover from falling below 1.3x going forward. Accordingly, GCR has affirmed the rating and a stable outlook has been assigned.
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 give rise to an upward rating movement. Specifically, note is taken of the benefits of the MMI shareholding, including potential capital support and strategic benefits, while potential for extraordinary support may provide rating upliftment going forward. Conversely, negative rating action 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/2013)
Claims paying ability: AA(ZA);
Outlook: Rating Watch
(011) 784 1771
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies
Global Summary Criteria for Rating Cell Captive Insurers
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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 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(s) included the latest available audited annual financial statements for F13 (plus four years of comparative numbers), latest internal and/or external report to management in September F14, full year detailed budgeted financial statements to FYE14, most recent year to date management accounts to January F14, the current year reinsurance/retrocession cover notes, actuarial valuation statement, debtors provisioning document.
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.