Johannesburg, 31 May 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Prosperity Lifecare Insurance Limited of A+(NA), with the outlook accorded as Stable. The rating is valid until 30 April 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Prosperity Lifecare Insurance Limited (“Prosperity Life”) based on the following key criteria:
The rating is underpinned by Prosperity Life’s strong representation in the medical insurance industry segment. GCR views the company to be well placed to defend its strong competitive position, given its first to market status and access to comprehensive underwriting data, which is considered key to its business strategy.
The company’s low total expense base has supported very strong underwriting profitability relative to its peers. GCR expects the insurer to continue to achieve cross cycle underwriting profitability, given the attainment of critical mass and the lean operating cost structure.
Capital adequacy remains sound on a nominal and risk adjusted basis, with net actuarial CAR cover expected to be maintained above 1.5x over the rating horizon. This is supported by the company’s robust income generating capacity and a well-defined dividend policy. Despite the strategic reduction in FY15, key liquidity measures are expected to remain sufficient over the rating horizon. This is premised on the insurer’s track record of robust operating cash flow generation and its active liquidity management. Furthermore, the relatively large portfolio of readily tradable investment assets provides an additional liquidity buffer in the event of unexpectedly high loss experience.
Following a shift in investment allocations, the value of higher risk asset classes (equities and property) increased to account for around 53% of FYE15 capital (FYE14: 33%). This is nevertheless contained at a fairly conservative level, while management has indicated that there are no plans to further increase investment risk over the rating horizon.
Within the medical offerings, one product was identified to have a high retained exposure, which could lead to increased capital risk. This has been a risk since the product’s inception and is well managed through annual premium increases and risk ratings.
Potential demarcation of medical related products could result in some of Prosperity Life’s offerings being classified as medical aid products, which is a potential risk to the company. Should it become legally enforced, management plans to manage this through a phasing out period or by changing the product design.
Continued profitable growth and an increase in premium and capital scale could support a rating upgrade over the medium term. This would need to be accompanied by strong levels of capital adequacy and liquidity. In contrast, a sustained deterioration in underwriting profitability or a further increase in asset risk that adversely impacts risk based capital adequacy or liquidity levels could result in negative rating movement.
|NATIONAL SCALE RATING HISTORY|
|Initial / last rating (April 2015)|
|Claims paying ability: A+(NA)|
|Primary Analyst||Committee Chairperson|
|Susan Hawthorne||Marc Chadwick|
|Senior Credit Analyst||Sector Head: Insurance Ratings|
|+27 11 784-1771||+27 11 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, Updated July 2015
Prosperity Life rating report, 2015
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.|
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Capital||The sum of money that is invested to generate proceeds.|
|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.|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|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.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|Experience||A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time period.|
|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 LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Investment Risk||The risk of a decline in the net realisable value of investment assets arising from adverse movements in market prices or factors specific to the investment itself (e.g. reputation and the quality of management).|
|Liquidity||The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Loss||The happening of the event for which insurance pays.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Risk Rating||The statistical process by which insurers determine risks and pricing for the basic classes of insurance.|
|Rating Horizon||The rating outlook period|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|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.
Prosperity Lifecare Insurance Limited participated in the rating process via written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to Prosperity Lifecare Insurance Limited with no contestation of the rating.
The information received from Prosperity Lifecare Insurance Limited and other reliable third parties to accord the credit rating included:
- The latest unsigned financial statements to 31 December 2015
- Four years of comparative financial statements to 31 December
- Full year budgeted financial statements to 31 December 2016
- External actuarial valuation at 31 December 2015
- Reinsurance cover notes for 2016
- Other relevant documents
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.
GCR affirms Prosperity Lifecare Insurance Limited’s rating of A+(NA); Outlook Stable