Johannesburg, 17 Dec 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Renasa Insurance Company Ltd of A-(ZA); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Renasa Insurance Company Ltd (“Renasa”) based on the following key criteria:
Renasa has been operating in South Africa since 1998. The insurer’s business model centres primarily on distribution via the independent intermediated channel, providing a broad product range to both the commercial and personal lines segments.
The rating reflects GCR’s view of capitalisation as adequate, with statutory CAR cover reported at 1.5x. GCR expects risk-adjusted capital adequacy to remain at supportive levels for the current rating over the short term following improved profitability forecasts and continued reinsurance support. Capital support is enhanced by the insurer’s conservative investment policy, which mitigates capital risk in the event of market volatility, while also translating into comfortable liquidity metrics. GCR views Renasa’s liquidity metrics as a rating strength and expects these measures to remain at solid levels in the medium term.
Renasa’s reinsurance structure facilitates the insurer’s business model, offering high levels of capacity, coupled with profit support. Counterparty credit risk arising from high reinsurance cessions is mitigated by a strong reinsurance panel and conservative risk and event retention levels, representing a relative rating strength.
GCR’s assessment of the company’s profitability is viewed as intermediate. While the atypical claims experience in the last two years saw the underwriting margin come under pressure, GCR positively views Renasa’s cross-cycle average profitability (albeit reflecting volatility). The insurer’s portfolio mix remains reasonably well diversified from a line of business perspective (both on a gross and net premium basis).
Factors considered constraints to the rating include the insurer’s business profile, which reflects a limited market position. This notwithstanding, the insurer’s enhanced systems infrastructure stands it in a good position to capture increased business volumes, highlighted by the strong growth recently achieved. Further, risk to revenue in terms of business procurement is considered high.
Upward movement of the rating or outlook could develop on the back of stronger, less volatile earnings, improved risk-adjusted capitalisation and an enhanced business profile.
Downward rating action could occur if the company’s risk-adjusted capitalisation declines to a level below GCR’s expectations. Additional factors that would be negatively viewed include weakened operating earnings (due to a deteriorating underwriting performance) and/or liquidity profile.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Sep/2006)
Claims paying ability: BBB+(ZA)
Last rating (Dec/2013)
Claims paying ability: A-(ZA)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (updated July 2014)
Renasa Insurance Company Limited rating reports, 2006-2013
RSA Short Term Insurance Bulletin 2006-2014
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.
Renasa Insurance Company Ltd 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 Renasa Insurance Company Ltd with no contestation of the rating.
The information received from Renasa Insurance Company Ltd and other reliable third parties to accord the credit rating(s) included the audited annual financial statements for FYE14 (plus four years of audited comparative numbers), full year detailed budgeted financial statements for FYE15, unaudited year to date management accounts to September 2014, the 2015 reinsurance summary, statutory returns for FYE14 and other related statistical and non-statistical 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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|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.|
|Broker||One who represents an insured in the solicitation, negotiation or procurement of contracts of insurance, and who may render services incidental to those functions. By law the broker may also be an agent of the insurer for certain purposes such as delivery of the policy or collection of the premium.|
|Catastrophe||Event, which causes a loss of extraordinary magnitude, such as a hurricane or tornado.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Combined Ratio||The sum of an expense ratio and a loss ratio. An underwriting profit occurs when the combined ratio is under 100% and an underwriting loss occurs when the combined ratio is over 100%.|
|Dividends in respect of financial year||A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders.|
|Experience||A term used to describe the relationship, usually expressed as a percent or ratio, of premium to claims for a plan, coverage, or benefits for a stated time period.|
|Insurance||A formal social device for reducing risk by transferring the risks of several individual entities to an insurer. The insurer agrees, for a consideration, to assume, to a specified extent, the losses suffered by the insured.|
|Insurance Company||Any corporation primarily engaged in the business of furnishing insurance protection to the public.|
|Insured||A person or organisation covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|Investment Income||The income generated by a company’s portfolio of investments (such as in bonds, stocks, or other financial ventures).|
|Line of Business||The classification of business as utilized in the insurance industry, e.g., Fire, Allied Lines and Homeowners.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss||The happening of the event for which insurance pays.|
|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.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business. Also, the total securities owned by an insurer.|
|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. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.|
|Retention||The net amount of risk the ceding company keeps for its own account.|
|Risk||(1) Uncertainty as to the outcome of an event when two or more possibilities exist. See also Pure Risk and Speculative Risk. (2) A person or thing insured. Contrast with Hazard and Peril.|
|Risk Management||An effort by a company or individuals employed or contracted by the company to minimise expenditure and maximise profitability.|
|ROaE||Return on Average Equity|
|Securities||Evidences of a debt or of ownership, as stocks, bonds, and checks.|
|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.|
|Surplus||The excess of assets over liabilities. Statutory surplus is an insurer’s or reinsurer’s capital as determined under statutory accounting rules. Surplus determines an insurer’s or reinsurer’s capacity to write business responsibility for only that portion of any risk, which exceeds the company’s established retentions.|
|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 Renasa Insurance Company Ltd’s rating of A-(ZA); Outlook Stable