RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) on Metropolitan Insurance Company Limited based on the following key criteria:
The rating recognises Metropolitan’s favourable strategic position as one of the leading local insurance companies. Market presence is further supported by established relationships with various corporate entities. The consistent downward trend in the insurer’s solvency margin over the review period, coupled with a further reduction projected for F13 (to 54%), has been negatively factored into the rating. In this regard, planned capital raising initiatives aimed at supporting growth have experienced delays, and as such the suppressed solvency measure has resulted in the placement of the rating on a “Negative” outlook. Metropolitan’s risk tolerance for CAT exposure is viewed to be aggressive, with maximum retention per event equating to 18% of the capital base (albeit halved relative to historical levels).
Cognisance was taken of the insurer’s conservative investment stance and concomitant strong liquidity position. The insurer’s underwriting profitability is strained by loss ratio volatility, which is expected to persist given the projected consistency in the business mix. Earnings capacity is further impeded by the high delivery cost ratio, indicative of requisite earned premium scale going forward. Cognisance is taken of the limited diversification within the insurer’s risk premium base, particularly in light of systemic challenges in motor (albeit an industry wide trend), with note also taken of a high degree of policyholder concentration. The regulatory reforms in debtors provisioning and those expected in capital and reporting standards are anticipated to have a positive impact on the financial stability of the sector going forward. However, the extent of the benefits derived therefrom (as per other regulations already implemented) is dependent on how strictly these are enforced.
Upward movement on the rating or outlook could develop with a sustained strengthening in solvency metrics, coupled with a further reduction in CAT exposure and the maintenance of healthy liquidity metrics and the prudent investment profile. This must be accompanied by the development of a stable underwriting track record and continued growth augmenting earnings diversification. Negative rating action may follow the solvency margin falling below GCR’s comfort level for this rating. A downgrade may also arise following a sustained deterioration in the operating performance, a weakening in liquidity metrics, or an adjustment in the current conservative investment stance.
NATIONAL SCALE RATINGS HISTORY | |
Initial rating (Aug/2010) | |
Long term: A(GH) | |
Outlook: Stable | |
Last rating (Aug/2012) | |
Long term: A(GH) | |
Outlook: Stable | |
ANALYTICAL CONTACTS | |
Primary Analyst | |
Marc Chadwick | |
Regional Sector Head: Insurance | |
+27 11 784 1771 | |
chadwick@globalratings.net | |
Committee Chairperson | |
Marc Joffe | |
Sector Head: Insurance | |
+27 11 784 1771 | |
joffe@globalratings.net | |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Criteria for Rating Short Term Insurance and Reinsurance Companies
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.
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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.
Metropolitan 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/s has been disclosed to Metropolitan Insurance Company Limited with no contestation of the rating.
The information received from Metropolitan Insurance Company Limited and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, unaudited year to date management accounts to 30 June 2013, the current year reinsurance cover notes, debtors provisioning figures, reserving methodologies, and proposed capital management plans.