Johannesburg, 30 Nov 2015 — 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 forms part of the greater Regent Group (comprising long and short term licences in South Africa, Botswana and Lesotho), which is a wholly owned subsidiary of Imperial Holdings Limited (“Imperial”). Recently, Imperial announced the sale of the Regent Group to the Hollard Insurance Group and the Yellowwoods Group (the umbrella holding company of Hollard). The transaction is subject to regulatory approvals, with the rating placed 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.
Regent’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 2.3x in FYE15. Capital strength is expected to be maintained at strong levels over the rating horizon, supported by the capital management strategy in place.
The insurer evidenced a continued strengthening in underwriting performance in FY15. This was aided by a shift of strategic focus on the core specialist motor portfolio and enhanced risk management processes. GCR considers Regent’s earnings capacity to be strong and sustainable over the rating horizon (with the 5-year average ROaE reported at 26%), underpinned by sound cross-cycle underwriting resilience. In this regard, despite its motor orientated focus, the high degree of policyholder granularity and large component of non-comprehensive niche products aids in limiting product risk, and to a degree, earnings volatility.
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.
The company’s business profile reflects a moderately strong competitive position in the motor sub-segment. Support in this regard has been derived through the insurer’s distribution franchise strength, which has allowed for a relatively strong foothold in specialty market segments. Going forward, growth prospects are, however, 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 (November 2014)|
|Claims paying ability: AA-(ZA)|
|Senior Credit Analyst|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Regent rating reports, 2000-2014
RATING LIMITATIONS AND DISCLAIMERS
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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.
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 2015
- 4 years of comparative numbers
- Unaudited interim results as at 30 September 2015
- Budgeted financial statements for 2016
- The 2016 reinsurance cover notes
- Statutory returns for financial year 2015
- 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>
|Admissible tier II debt||Admissible supplementary capital.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|Book of Business||A total of all insurance accounts written by a company or agent. It may be treated in different ways. For example: an insurer’s book of automobile business, or an agent’s overall book of business, or an agent’s book of business with each insurer.|
|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.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Execution Risk||The risk that a company’s business plans will not be successful when they are put into action.|
|Financial Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|Interest||Money paid for the use of money.|
|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.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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||A risk experienced by those who invest in securities which is the risk of possible loss of investment since there are no guarantees associated with such investments.|
|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.|
|Operating Profit||Profits from a company’s ordinary revenue-producing activities, calculated before taxes and interest costs.|
|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.|
|Rating Horizon||The rating outlook period|
|Rating Outlook||A rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|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.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|ROaE||Return on Average Equity.|
|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.|
|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.|
|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.|
GCR affirms Regent Insurance Company Limited’s rating of AA-(ZA); Rating Watch