Global Credit Ratings has accorded the above credit rating(s) on New National Assurance Company Limited (“NNAC”) based on the following key criteria:
NNAC has been in operation since 1971, with the company expanding its presence nationally in 1994, from being a niche insurer, to one that services all markets. The company has grown through the use of underwriting managing agents (“UMAs”). NNAC is largely owned by private individuals (management), with Munich Re’s (whom have a strategic partnership agreement in place with the insurer) shareholding amounting to 16%. The strategic partnership with Munich Re allows NNAC to draw upon technical and capital support through its comprehensive reinsurance programme, which is a positive rating consideration. Solvency metrics remain strong, supporting the insurer’s financial profile. In this regard, the international solvency margin has risen to an 11 year high, supporting the growth of the risk base, which has risen tenfold over the corresponding period. This is further reflected in the statutory CAR cover of 2x. NNAC’s capital position is anticipated to remain conservative, relative to its risk profile over the medium term. Reinsurance arrangements are placed with highly rated counterparties, with the highest net retention per risk limited to a low 1.2% of FYE12 capital, which is favourably considered. The insurer’s conservative investment strategy has underpinned sound liquidity metrics, which compare favourably with peer group and industry averages. This has further supported stable investment returns and overall profitability. Whilst cognisance is taken of the rising trend over the review period, the insurer’s low delivery cost ratio remains a competitive advantage (consistently tracking below its peers and the industry average), allowing for a greater degree of underwriting flexibility. A key factor considered in the rating was the significant concentration risk, given the reliance on a few large UMAs, coupled with the high weighting of motor within the overall risk base. Whilst cognisance is taken of the internal motor pricing model and benefit it affords in terms of pricing, the absence of portfolio diversification remains a concern. Positively, note is taken of the growth in the engineering and corporate portfolios.
An upward movement on the rating or outlook could occur should NNAC expand its market profile, and improve its risk diversification base, whilst maintaining the stable and profitable underwriting track record. This would need to be accompanied by the maintenance of solvency at appropriate levels. In terms of a downward movement, this could occur on the back of the loss of large book(s) of business impacting scale efficiencies and overall underwriting profitability. This could also occur given a significant weakening in the solvency margin, owing to an increase in risk appetite.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2005)|
|Claims paying ability: A-(ZA)|
|Outlook: Rating watch|
|Last rating (Aug/2012)|
|Claims paying ability: A(ZA)|
|+27 11 784 1771|
|Regional 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.
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 included the latest available audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, the current year reinsurance/retrocession cover notes, underwriting management agencies management accounts, ERM processes/framework, capital management policy.