Johannesburg, 15 Dec 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Regent Insurance Company Limited of AA-(ZA), with the rating placed on ‘Rating Watch’.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Regent Insurance Company Limited (“Regent”) based on the following key criteria:
Regent’s rating is impacted by the ongoing intended purchase of Regent by the Hollard Insurance Group. The transaction remains subject to regulatory approvals, with the rating maintained on Rating Watch pending finalisation. GCR anticipates resolving the Rating Watch status once a clear understanding of the business plan under the new ownership is made available.
The insurer’s capital position is viewed as strong, based on its risk-based capital assessment. This stems from the strong regulatory solvency displayed, with CAR reported at 2.2x in FYE16. Capital strength is expected to be maintained at strong levels over the rating horizon, supported by the capital management strategy in place.
Regent’s earnings capacity is viewed to be strong, benefitting from the maintenance of a strengthened underwriting performance over the past two years. This has been facilitated by a strategic shift towards the core specialist motor portfolio, coupled with enhanced underwriting and claims management initiatives. Continuity in the insurer’s underwriting strategy is expected to underpin strong profit margins and low earnings volatility over the rating horizon.
The sizeable investment portfolio, coupled with management’s decreasing appetite for market risk of late, should see liquidity metrics being sustained within a strong range going forward.
Regent reflects a moderately strong competitive position in the specialty motor sub-segment, supported by the insurer’s distribution franchise strength. Furthermore, earnings diversification benefits from the high degree of policyholder granularity, and relative containment of product risk carried by the large component of non-comprehensive niche offerings. Going forward, the insurer’s business profile is expected to reflect consistency in competitiveness and spread, although growth prospects are anticipated to be constrained by increasing economic pressures on industry vehicle sales volumes.
In view of the pending transaction, an upgrade of the rating is unlikely over the short term. Negative rating pressure could arise from a weakening in capital adequacy and key liquidity metrics to levels outside of GCR’s parameters, and/or should Regent not be viewed to benefit from strategic support from the new shareholding structure, once finalised.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (October 2000)|
|Claims paying ability: A+(ZA)|
|Last rating (July 2016)|
|Claims paying ability: AA-(ZA)|
|Outlook: Rating Watch|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Munyaradzi Mushure|
|Sector Head: Insurance Ratings||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Regent rating reports, 2000-2015
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.
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.
Regent 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 has been disclosed to Regent Insurance Company Limited with no contestation of the rating.
The information received from Regent Insurance Company Limited and other reliable third parties to accord the credit rating included:
- Audited financial results as at 30 June 2016
- Four years of comparative numbers
- Unaudited interim results as at 30 September 2016
- Budgeted financial statements for 2017
- The 2017 reinsurance cover notes
- Statutory returns for financial year 2016
- Corporate governance and enterprise risk framework
- Other non-public statistical information
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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|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.|
|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.|
|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.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|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 (“ISR”)||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.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|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.|
|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 (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|Policyholder||The person in actual possession of an insurance policy.|
|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.|
|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.|
|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.|
|Short Term||Current; ordinarily less than one year.|
|Solvency||With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.|
|Statutory||Required by or having to do with law or statute.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
GCR affirms Regent Insurance Company Limited’s rating of AA-(ZA); Rating Watch