Announcements

GCR affirms Infiniti Insurance Limited’s rating of A-(ZA); Outlook Stable.

Johannesburg, 31 Oct 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Infiniti Insurance Limited of A-(ZA); with the outlook accorded as Stable.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Infiniti Insurance Limited (“Infiniti”) based on the following key criteria:

Capitalisation is viewed to be moderately strong, and a core contributor to Infiniti’s rating. Capitalisation has strengthened over the review period, following a capital injection of R65m in F13, coupled with a consistent level of retained income over the past three years. As a result, the international solvency margin increased to 67% in F14 (F13: 59%). Similarly, statutory CAR equated to a higher 2.3x at FYE14 (FYE13: 1.9x). GCR expects the insurer to remain adequately capitalised relative to the rating over the outlook horizon, in light of the anticipated growth trajectory.

Profitability has been measured at intermediate levels, and supports the insurer’s rating. Infiniti’s earnings capacity has been bolstered by high levels of unrealised investment gains over the past three years. The insurer also evidences a healthy level of technical profit margins (3-year average: 39%). However, underwriting profitability has remained thin throughout the review period, largely due to an elevated cost structure, which is largely impacted by profit sharing arrangements with key partners.

The sizeable investment portfolio, consisting largely of tradable securities, coupled with the investment mandate, allows for cash to be drawn down from the portfolio. This is viewed to offer Infiniti a high level of liquidity support. Liquidity metrics on a pure cash basis remained constrained relative to the peer group, given the medium term investment stance.

The investment portfolio is substantially exposed to domestic and foreign equities, representing a combined 117% of capital at FYE14 (FYE13: 128%). This introduces a considerable level of capital risk in the event of capital market shocks. In partial mitigation of this risk, the non-cash investment portfolio is actively managed by Foord Asset Management (“FAM”) in line with a specific mandate targeting capital preservation, prevailing market conditions, volatility and tactical asset allocation strategy. Improved risk-adjusted capitalisation also contributes to our view that the insurer is positioned to absorb a degree of potential exogenous shocks emanating from capital markets.

Infiniti’s business profile reflects a modest level of competitive positioning, which limits the credit rating. The business model centres on the development of established and diversified underwriting management agencies, books of business from independent brokers and branches in specialized areas. This strategy is expected to enhance market share over the medium term.

The reinsurance programme limits maximum net deductibles to levels considered to be conservative relative to the capital base.

An upward movement on the rating or outlook could develop if the insurer evidenced an increase in competitive positioning, supported by a sustained strengthening in underwriting profitability, and a material de-risking of the investment portfolio. This would need to be supported by risk-adjusted capitalisation at appropriate levels. Conversely, a downward rating movement may arise if the solvency margin dipped below 45% on a sustained basis, and/or a deterioration in liquidity metrics is evidenced. Furthermore, a weakening in the operating performance on a sustained basis, or pronounced equity market losses impacting on capital in the absence of further capital injections, could result in negative rating movements.

NATIONAL SCALE RATINGS HISTORY

Initial rating (Dec/2010)
Claims paying ability: A-(ZA)
Outlook: Stable

Last rating (Oct/2013)
Claims paying ability: A-(ZA)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Yvonne Masiku
Analyst
(011) 784-1771
Ymasiku@globalratings.net

Committee Chairperson
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Insurance Companies, July 2014

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. 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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

Infiniti Insurance 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 Infiniti Insurance Limited with no contestation of the rating.

The information received from Infiniti Insurance Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements for 2014 (plus four years of comparative numbers), latest external auditors report to management for 2014, full year detailed budgeted financial statements for 2015, most recent year to date management accounts to July 2014, the current year reinsurance cover notes, and 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.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY

Assets

The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’

Balance Sheet

An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.

Bond

A certificate issued by a government or corporation as evidence of a debt. The issuer of the bond promises to pay the bondholder a specified amount of interest for a specified period and to repay the loan on the expiration (maturity) date.

Claim

A request for payment of a loss, which may come under the terms of an insurance contract.

Commission

A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.

Coverage

The scope of the protection provided under a contract of insurance.

Equities

Investments in the form of ownership of property, usually common stocks, as distinguished from fixed income bearing securities, such as bonds or mortgages.

Insurance

A formal social device for reducing risk by transferring the risks of several individual entities to an insurer. The insurer agrees, for a consideration, to assume, to a specified extent, the losses suffered by the insured.

Insurance portfolio

All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.

Insurer

Any corporation engaged in the business of furnishing insurance to the public.

Investment portfolio

The total securities owned by an insurer.

Liquidity

The ability of an insurer to convert its assets into cash to pay claims if necessary.

Loss

The happening of the event for which insurance pays.

Market Value

The price for which something would sell, especially the value of certain types of assets, such as stocks and bonds. It is based on what they would sell for under current market conditions.

Policy

The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.

Policyholder

The person in actual possession of an insurance policy.

Premium

The price of insurance protection for a specified risk for a specified period of time.

Protection

A term used interchangeably with ‘coverage’ to denote insurance provided under the terms of a policy.

Contract provision

A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.

Rating

The statistical process by which insurers determine risks and pricing for the basic classes of insurance.

Reinsurance

The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued.

Risk

(1) Uncertainty as to the outcome of an event when two or more possibilities exist. See also Pure Risk and Speculative Risk. (2) A person insured.

Securities

Evidences of a debt or of ownership, as stocks, bonds, and checks.

Shareholders’ equity

The money value of an insurance company that is over and above its liabilities. Liabilities include almost all of its reserves.

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 solvency

Required by or having to do with law or statute.

Term

The period of time for which a policy or bond is issued.

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.

GCR affirms Infiniti Insurance Limited’s rating of A-(ZA); Outlook Stable.

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