Johannesburg, 12 Nov 2013 — Global Credit Ratings has today affirmed the national scale financial strength rating assigned to Guardrisk Life Limited of AA-(ZA); with the rating placed on Rating Watch.
Global Credit Ratings has accorded the above credit rating(s) on Guardrisk Life Limited based on the following key criteria:
Guardrisk Life Limited (“Guardrisk Life”) 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.
A supporting factor to the rating is Guardrisk Life’s leading position in the cell captive assurance market, which is further underpinned by management’s high level of expertise and demonstrated track record. The cell captive assurer has evidenced considerable growth in both its premium and asset base over the review period. The commensurate fee income stream has supported the stability evidenced in profitability and internal capital generation. This is further supported by Guardrisk Life’s CAR coverage, which amounted to a strong 5.7x in F13, exceeding the review period average of 4.2x and well above the FSB requirement and actuarially assessed 1.5x required cover. The rating was also underpinned by the insurer maintaining sound levels of capitalisation, with core capital (excluding statutory reserves and cell capital surpluses) covering the actuarial assessment of capital “at risk” by a higher 4.2x in F13 (F12: 1.0x), which exceeds the minimum required by GCR to support the rating. Although the assurer’s business model is inherently exposed to the solvency of the individual cells, note is taken of the corrective measures implemented (where necessary) to actively manage this solvency shortfall in the underlying respective cells. Guardrisk Life’s conservative sizeable investment portfolio reflects a high degree of liquidity and is supported by a large portion of readily redeemable instruments, which is supportive of the current rating. Asset/liability matching is deemed adequate. 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 (Dec/2004)|
|Financial Strength: A+(ZA)|
|Last rating (Oct/2012)|
|Financial Strength: 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 Life 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 Life Limited with no contestation of the rating.
The information received from Guardrisk Life 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), latest internal and/or external report to management, full year detailed budgeted financial statements for F14, most recent year to date management accounts for July 2014, the current year reinsurance schedule, actuarial valuation statement for FYE13, ERM processes/framework (including catastrophe management framework), capital management policy, LT Return for FYE13.
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.