Johannesburg, 31 October 2018 — 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 factors:
Infiniti’s capitalisation is viewed to be moderately strong, supported by a sizeable capital base catering for the quantum of insurance and asset risks. Cognisance is taken of a reduction in the capital base in FY18, on the back of an atypically large unrealised loss. In GCR’s view, capitalisation is likely to improve to historical levels, given the de-risking of the asset base, coupled with improved underwriting profitability envisaged. Furthermore, maximum net deductibles are limited to levels considered to be conservative relative to the capital base, while the reinsurance programmes are led by counterparties with strong credit profiles.
Domestic and foreign equities represented a lower 74% of capital at 5M FY19, (FY18: 134%; FY17: 129%), following the de-risking of the portfolio, with increased funds placed in government securities and short term deposits. Nevertheless, capital risk remains somewhat elevated, 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, with the tactical asset allocation strategy taking into account prevailing market conditions and volatility. Moderately strong risk adjusted capitalisation also contributes to GCR’s view that the insurer is positioned to absorb a degree of potential exogenous shocks emanating from capital markets.
Liquid assets, including government securities, increased to R565m at 5M FY19 (FY18: R264m; FY17: R313m), supported by the asset re-allocation. As such, liquidity metrics registered within a moderately strong range, with coverage of net technical liabilities equating to 1.7x (FY18: 0.7x; FY17: 0.7x), and coverage of average monthly claims registering at 15 months (FY18: 6 months; FY17: 6 months). Additionally, the insurer’s sizeable investment portfolio, consisting largely of tradeable securities, coupled with the investment mandate, allow for cash draw downs from the portfolio, which offers Infiniti a high level of liquidity support. Liquidity metrics may remain at similar levels over the short term, while over the long term, may trend closer to historic levels.
Earnings capacity remained constrained in FY18, on the back of subdued investment returns (impacted by currency fluctuations), offsetting a slight improvement in underwriting performance. In this respect, the insurer registered a net loss of R35m in FY18 (FY17: R6m loss), while the underwriting margin registered at 1% (FY17: -2%: FY16: -1%). Management has budgeted for an increase in net profitability in FY19, supported by enhanced underwriting profitability and stronger investment income, with year to date results reflecting an improvement. As such, GCR views the development of earnings capacity over the rating horizon as a key rating determinant.
Infiniti’s business profile is viewed to be moderate, with the specialist focus contributing towards growth, despite a relatively limited competitive position. The business model centres on supporting established and diversified specialised underwriting management agencies (“UMAs”), independent brokers as well as branches in specialized areas. The strategy is expected to enhance market share over the medium term. The ability of the insurer to maintain operational continuity, while sustaining through-the-cycle profitability, in the event of a loss of a significant partner, remains a key rating consideration over the medium term. Cognisance is taken of enhanced earnings diversification, with contributions from other key partners increasing materially over the years.
The rating may be upgraded if the insurer’s risk adjusted capitalisation and/or liquidity metrics strengthen materially. Furthermore, sustainable enhancement of earnings capacity stemming from improved underwriting profitability may lead to positive rating movement. Conversely, a sustained weakening in earnings capacity and/or deterioration in capitalisation may lead to negative rating pressure.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (December 2010)|
|Claims paying ability: A-(ZA)|
|Last rating (October 2017)|
|Claims paying ability: A-(ZA)|
|Primary Analyst||Secondary Analyst|
|Sylvia Mhlanga||Yvonne Mujuru|
|Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018.
RSA Short Term Insurance Bulletins, 2001-2017.
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.
The information received from Infiniti Insurance Limited and other reliable third parties to accord the credit rating included:
- The audited financial results up to 31 March 2018
- Four years of comparative audited numbers
- Unaudited interim results up to 31 August 2018
- Budgeted financial statements to March 2019
- The current year reinsurance summary
- Statutory returns to 31 March 2018, and
- Other related documents.
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.
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Capital||The sum of money that is invested to generate proceeds.|
|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.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|International Scale Rating (“ISR”)||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|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.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|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.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|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.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|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.|
|Statutory||Required by or having to do with law or statute.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
For a more detailed glossary of terms, please click here
GCR affirms Infiniti Insurance Limited’s rating of A-(ZA); Outlook Stable.