Johannesburg, 31 Jul 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to New National Assurance Company Limited of A(ZA); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to New National Assurance Company Limited (“NNAC”) based on the following key criteria:
The rating is supported by sound capital adequacy with a statutory CAR cover at 1.6x and an international solvency at 61% in F13. Going forward, capital target ranges will be conservative, based on expected SAM parameters. Therefore, GCR expects risk-adjusted solvency to remain at adequate levels over the rating horizon.
NNAC employs a conservative investment strategy, which has underpinned strong liquidity metrics. The investment strategy has further supported stable investment returns and overall profitability. With no changes to the strategy envisaged in the next 12 to 18 months, GCR expects the liquidity metrics to remain at strong levels.
The insurer’s underwriting profitability track record evidences a high degree of aggregate stability. While the atypical claims experience in the last two years saw the underwriting margin come under pressure, GCR views NNAC’s cross-cycle earnings capacity to be competitive.
Reinsurance arrangements are placed with highly rated counterparties, with the highest net retention per risk and event limited to levels viewed to be conservative.
The insurer’s portfolio exhibits a relatively high level of concentration risk, given the reliance on a few large UMAs, and the high weighting of motor in the risk base. While cognisance is taken of the internal motor pricing model and potential benefits it affords, in terms of pricing, the absence of earnings diversification remains a rating weakness.
NNAC’s business profile reflects a moderate level of competitive positioning, with the insurer’s relative market share aligned with the industry median.
The rating could be upgraded if NNAC expands its market profile, and improves its risk base diversification, whilst maintaining a stable and profitable underwriting track record. This would need to be accompanied by the maintenance of solvency at appropriate levels. Conversely, a downgrade may arise if a large book of business was lost, impacting scale efficiencies and overall underwriting profitability. A significant weakening in the solvency margin, increased exposure to market risk, or a sustained deterioration in profitability could lead to a negative rating movement.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (Sep/2005)
Claims paying ability: A-(ZA)
Last rating (Jun/2013)
Claims paying ability: A(ZA)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (July 2013)
New National Assurance Company Limited rating reports, 2005 – 2013.
RSA Short Term Insurance Bulletin 2001-2013.
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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.
New National Assurance 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 New National Assurance Company Limited with no contestation of the rating.
The information received from New National Assurance Company Limited and other reliable third parties to accord the credit rating(s) included the audited annual financial statements for FYE13 (plus four years of audited comparative numbers), latest independent auditor’s report to shareholders for FYE13, full year detailed budgeted financial statements for FYE14, unaudited year to date management accounts to March 2014, the current year reinsurance summary, statutory returns for FYE13 and 1Q F14 and other related documents.
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.
GCR affirms New National Assurance Company Limited’s rating of A(ZA); Outlook Stable.