Johannesburg, 20 Dec 2013 — 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.
Global Credit Ratings has accorded the above credit rating(s) on Renasa Insurance Company Ltd based on the following key criteria:
Renasa Insurance Company Limited (“Renasa”) has been operating in South Africa since 1998. The insurer is owned by a consortium of local investors and operates in the commercial and personal lines space through a network of independent brokers.
Renasa has made sound progress in terms of growing its market share, enhancing portfolio diversification and improving critical mass, which is a supporting factor to the rating. The insurer’s exclusive rolling three-year reinsurance programme provides the necessary capacity for medium term growth, as well as forming an integral part of its capital management strategy. Capitalisation measures have remained sound through the review period supported by a conservative capital distribution strategy, which is a sustaining factor to the rating. Some growth strain has, however, materialised, which has seen solvency metrics soften from review period highs. This notwithstanding, medium term solvency projections are augmented by reinsurance support. The rating was further underpinned by the insurer’s conservative investment strategy, given the high weighting in cash and cash equivalents. This has supported sound liquidity metrics, as well as stable investment returns and overall profitability.
The performance of the insurer’s gross loss ratio has evidenced comparative stability relative to its peers. A higher degree of net underwriting volatility has, however, been seen over the review period. Note is taken of the reinsurance commission inflows (relating to the reinsurance programme), which has provided relief to Renasa’s delivery cost ratio. Furthermore, outlays made over the past two years have been aimed at positioning the business to capture additional volumes and enhance scale efficiencies going forward. As such, GCR expects cost pressures to ease in the medium term, subject to the insurer’s successful implementation of strategic initiatives. Factors considered constraints in the rating were the significant concentration risks given the high weighting of motor, coupled with the concentration of premium origination (albeit with the concentration reducing in the recent period). Whilst cognisance is taken of the innovative and proactive approach aimed at reducing the motor loss ratio, which has been evidenced through the review period, the motor class remains prone to the vagaries of the industry and could impact on profitability.
An upward movement of the rating or outlook could develop as Renasa’s track record as a rated entity matures through enhanced premium diversification, realisation of improved scale efficiencies, whilst maintaining underwriting profitability. This must be accompanied by risk appropriate solvency levels and the maintenance of the sound investment portfolio. In terms of a downward movement, this may arise if there was a pronounced weakening in credit protection and liquidity metrics, and if current measures reduce further approaching the lower limit of the rating band. This could also be brought about through a significant change in the reinsurance programme, which has negative repercussions on operational efficiencies.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Mar/2006)|
|Claims paying ability: BBB+(ZA)|
|Last rating (Nov/2012)|
|Claims paying ability: A-(ZA)|
|+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
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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 included the FYE13 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements for F14, unaudited year to date management accounts to September 2013, the 2013/2014 reinsurance cover notes, statutory return for FYE13 and other non-public statistical information.
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.