Johannesburg, 23 Dec 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Oakhurst Insurance Company Limited of A-(ZA), with the outlook accorded as Stable. Global Credit Ratings has also downgraded the international scale claims paying ability rating assigned to Oakhurst Insurance Company Limited, to BB from BB+, with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Oakhurst Insurance Company Limited (“Oakhurst”) based on the following key criteria:
The ratings are underpinned by Oakhurst’s strong risk adjusted capitalisation, which is expected to remain at rating consistent levels through the short to medium term expansionary phase. Furthermore, key liquidity metrics have been sustained at sound levels over the review period, and are complemented by a large component of interest bearing securities and unit trusts. Overall, liquidity is expected to be maintained within a strong range, given the insurer’s investment appetite and risk management framework. Oakhurst reflects a strong balance sheet structure and moderately conservative exposure to market risk, although the potential move into listed equities could see an increase in balance sheet risk.
The insurer has achieved sustained underwriting profitability since inception, which is a function of the company’s scientific underwriting approach and relatively large niche component. Despite severe currency depreciation and the impact on average motor claims costs, this has been fairly well managed to date, attesting to the insurer’s responsive underwriting framework and well developed claims management capabilities. Note is, however, taken of the expansion into the more commoditised intermediated market, which potentially introduces a greater degree of underwriting volatility. In this regard, the ability to successfully execute strategic objectives will be indicative of future earnings capacity.
Despite being predominantly motor-focused (95% of GWP), the earnings stream is diversified across sub-segments, while note is taken of the policyholder granularity and limited product risk associated with the traditional business lines. The insurer’s limited market share represents a relative rating weakness. This notwithstanding, GCR considers Oakhurst to be well placed for continued penetration into the core personal lines space. Furthermore, the expansion into commercial lines could contribute towards an enhanced competitive profile over the medium to longer term.
Reinsurance is placed with well rated counterparties, while Excess of Loss risk and event net deductibles are considered to be prudent.
The downgrade of Oakhurst’s international scale claims paying ability rating follows the downgrade of the ratings and revision of the outlooks of several South African insurance companies, owing to a recalibration of the mapping tables used for issuers/companies rated in South Africa. The updated mapping table (released publicly by GCR on 14 December 2015) follows a recent revision of the Republic of South Africa’s international scale local currency Issuer Default Rating (from ‘BBB+’ with a Negative outlook to ‘BBB’ with a Stable outlook). Furthermore, the South African country ceiling has been lowered from ‘A-‘ to ‘BBB’. The rating action taken does not reflect a change in key rating factors applicable to Oakhurst Insurance Company Limited’s credit profile, barring the impact of sovereign risk.
The successful execution of expansion initiatives while preserving underwriting profitability could translate into positive rating movement. This is premised on the insurer maintaining liquidity and risk adjusted capital adequacy at prudent levels. In contrast, a sustained deterioration in underwriting profitability and/or weakening in other key credit protection measures could place downward pressure on the ratings.
NATIONAL SCALE RATING HISTORY INTERNATIONAL SCALE RATING HISTORY
Initial / last rating (January 2015)
Claims paying ability: A-(ZA)
Initial / last rating (January 2015)
Claims paying ability: BB+
Senior Credit Analyst
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Oakhurst rating report, December 2014
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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY>
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Balance Sheet||A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators.|
|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.|
|Commercial Lines||Insurance for businesses, professionals, and commercial establishments.|
|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.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Deductible||The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.|
|Downgrade||The assignment of a lower credit rating to an insurer by a credit rating agency. Opposite of upgrade.|
|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||ISRs relate to either foreign currency or local currency commitments, assessing the capacity of an issuer to meet these commitments using a globally applicable (and therefore internationally comparable) scale.|
|Interest||Money paid for the use of money.|
|Liquidity||The speed at which assets can be converted to cash.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|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||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Reinsurance||The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued.|
|Retention||The net amount of risk the ceding company keeps for its own account.|
|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.|
|Securities||Various instruments used in the capital market to raise funds.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Statutory||Required by or having to do with law or statute.|
|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.|
|Upgrade||The assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade.|
For a detailed glossary of terms please click here
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.
Oakhurst Insurance Company Limited participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to Oakhurst Insurance Company Limited with no contestation of the rating.
The information received from Oakhurst Insurance Company Limited and other reliable third parties to accord the credit ratings included:
- The latest audited annual financial statements to 28 February 2015
- Four years of audited comparative financial statements to 28 February
- Full year budgeted financial statements to February 2016
- Unaudited year to date management accounts to October 2015
- The quantitative statutory return to February 2015
- 2015/2016 reinsurance treaty summary
- 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 Oakhurst Insurance Company Limited’s rating of A-(ZA); Outlook Stable.