Global Credit Ratings has accorded the above credit rating(s) on Nedgroup Insurance Company Limited based on the following key criteria:
Nedgroup Insurance is wholly owned by Nedbank Group Limited, one of the largest banking institutions in South Africa (AA(ZA)). Ultimate shareholder Old Mutual Plc is rated BBB on an international foreign currency scale. The shared customer base, aligned branding and operational benefit derived from the parent contribute to Nedgroup Insurance’s strategic importance to the group. Competitive positioning is viewed as moderately strong, although the current rating is constrained by the comparatively small size of the insurer, limiting its market profile. Accordingly, expansionary initiatives contribute positively to the rating outlook, with market penetration via established underwriting partners allowing for a potentially controlled entrance into a fiercely competitive space. The successful execution of the expansion and diversification strategy represents a key rating consideration over the short to medium term rating horizon.
Nedgroup Insurance has displayed adequate solvency metrics throughout the review period, supported by an internal economic capital model that is aligned with (and supported by) group policies. CAR coverage is projected to be maintained at a minimum level of 1.5x, while the international solvency margin is forecast to remain above 50%. These metrics are supportive of the insurer’s current rating as per GCR’s solvency framework. Capitalisation levels are further supported by the high quality of counterparties on the reinsurance programme, and the relatively conservative investment strategy limits capital exposure to market volatility, while supporting liquidity metrics. Given the increased delivery cost structure and heightened execution risk, however, the bedding down of new strategic initiatives increases operational risk. Furthermore, strong loss ratio control will be necessitated in order to maintain a competitive underwriting margin spread, given the commoditised nature of the targeted business, coupled with the typically attritional claims experience.
Upward movement of the rating or outlook could develop following the successful execution of the insurer’s expansionary initiatives, benefitting from increased market penetration, coupled with enhanced earnings diversification, while maintaining a stable and profitable underwriting track record. This must be accompanied by risk appropriate solvency levels, with a stringent capital management policy, and the maintenance of a prudent investment profile. Furthermore, the rating may strengthen should rating upliftment via the support framework increase. A downgrade may arise if the strategic importance of the insurer to the group were to weaken, or if a sustained deterioration in the operating performance was evidenced, commensurate with the solvency margin falling below GCR’s comfort level for this rating on a sustained basis, and/or a weakening in liquidity metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2012)|
|Claims paying ability: A+(ZA)|
|Last rating (Sep/2012)|
|Claims paying ability: A+(ZA)|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
|Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Nedgroup 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 Nedgroup Insurance Company Limited with no contestation of the rating.
The information received from Nedgroup 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), full year detailed budgeted financial statements, unaudited year to date management accounts to 31 May 2013, the current year reinsurance cover notes, ERM processes/framework (including catastrophe management framework), reserving methodologies, capital management framework.