Announcements Insurance Rating Alerts

GCR affirms Infiniti Insurance Limited’s national scale financial strength rating of A-(ZA); Outlook Stable

Rating Action

Johannesburg, 22 July 2020 – GCR Ratings (“GCR”) has affirmed Infiniti Insurance Limited’s (“Infiniti”) national scale financial strength (formerly claims ability) rating of A-(ZA), with the outlook accorded as Stable.

Rated Entity / Issue

Rating class

Rating scale

Rating

Outlook/Watch

Infiniti Insurance Limited

Financial strength

National

A-(ZA)

Stable Outlook

The rating action follows a reduction in the South African country and insurance sector risk assessments.

The South African country risk score was lowered to 7.0 from 7.5 previously, in a market alert released on the 27th May 2020. Click here to access the link. On 4th June 2020, the South African Insurance sector risk score was also lowered to 8.0 from 8.75 previously. Click here to access link.

Combined, the above country and sector risk scores comprise the operating environment score, which is a key input into GCR’s ratings.

Rating Rationale

The rating is supported by Infiniti’s moderately strong liquidity and risk adjusted capitalisation as well as modest (but improved) earnings, which are offset by a relatively weaker business profile.

The insurer’s risk adjusted capitalisation is viewed to be moderately strong, supported by a sizeable capital base that caters for the quantum of insurance and market risk exposures. Infiniti’s regulatory Solvency Capital Requirement has been maintained above 1.4x over the review period. While cognisance is taken of potential moderation of SCR as a result of suppressed earnings caused by COVID-19 pandemic associated risks, GCR expects capitalisation to be sustained at a rating adequate level over the outlook horizon.

Infiniti has a moderately strong liquidity profile, as evidenced by stressed financial asset coverage of net technical liabilities measuring at 1.5x (FY19: 1.7x), while operational cash coverage registered at 7 months at FY20 (FY19: 9 months). GCR nevertheless notes the potential for volatility in liquidity metrics associated with domestic and foreign equity holdings (more so during the COVID-19 pandemic), as well as active management of asset allocation that causes year-on-year fluctuations. However, liquidity metrics are expected to measure within a rating consistent band over the outlook horizon.

Underwriting performance has been on an upward trend over the last three years, largely supported by cancellation of non-performing business, together with continued underwriting discipline. In this regard, the three year underwriting margin registered at 5.2% compared to -1.4% over the prior two year period. Net income after tax continued on an upward trend in FY20 after having been significantly impacted by currency fluctuations in FY18. As such, the five year return on NEP ratio equated to 4.8% (FY20: 8.6%; FY19: 9.0%). GCR notes the downside risks posed by the COVID-19 pandemic, which could adversely impact on premium volumes and claims, while investment returns are also at risk given the uncertain investment environment. However, the insurer’s ability to sustain the improved trend in normalised performance over the medium term represents a key rating driver.

The rating further takes into account the entity’s relatively weaker business profile, with a gross premium market share of around 0.9% and a relative market share of 0.67x. Similarly, the premium mix is viewed to be intermediate, with four lines of business representing more than 10% of net premiums.

Outlook Statement

The Stable Outlook reflects expectations of a stable financial profile, while factoring in non-material changes in the business profile. Earnings are expected to moderate as a result of low premium growth and potential increase in claims, coupled with lower investment returns, however, GCR expects earnings metrics to be maintained within an adequate range. Although capitalisation metrics may moderate as a result of low internal capital generation, SCR coverage is expected to remain above 1.2x.

Rating triggers

Positive rating action may stem from a sustainable improvement in underwriting profitability while all other credit protection metrics remain within moderately strong ranges. Conversely, downward rating pressure may arise from a persistent deterioration in risk adjusted capitalisation and liquidity metrics.

Analytical Contacts

Primary analyst

Sylvia Mhlanga

Senior Analyst: Insurance

Johannesburg, ZA

Sylviam@GCRratings.com

+27 11 784 1771

     

Committee chair

Godfrey Chingono

Deputy Sector Head: Insurance

Johannesburg, ZA

GodfreyC@GCRratings.com

+27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019

Criteria for Rating Insurance Companies, May 2019

GCR Ratings Scales, Symbols & Definitions, May 2019

GCR Country Risk Scores, May 2020

GCR Insurance Sector Risk Scores, July 2020

Ratings History

Infiniti Insurance Limited

Rating class

Review

Rating scale

Rating class

Outlook/Watch

Date

Financial Strength

Initial

National

A-(ZA)

Stable

December 2010

Last

National

A-(ZA)

Stable

October 2019

Risk Score Summary

Rating Components & Factors

Risk scores

 

Operating environment

15.00

Country risk score

7.00

Sector risk score

8.00

   

Business profile

(2.50)

Competitive position

(2.00)

Premium diversification

(0.50)

Management and governance

0.00

 

Financial profile

(0.50)

Earnings

(0.50)

Capitalisation

0.00

Liquidity

0.00

   

Comparative profile

0.00

Group support

0.00

Government support

0.00

Peer analysis

0.00

   

Total Score

12.00

Glossary

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.

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.

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.

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.

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.

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.

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of rated entities, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to Infiniti Insurance Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

Infiniti Insurance Limited participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from the entities and other reliable third parties to accord the credit rating included:

  • Four years of comparative audited financial statements to 31 March;
  • Unaudited interim results to 30 April 2020;
  • Quarterly quantitative statutory returns at 31 March 2020; and
  • Other relevant documents.

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