Announcements Insurance Rating Alerts

GCR affirms Standard Insurance Co., INC’s national scale financial strength rating of A(PH); Outlook Stable

Rating Action

Johannesburg, 02 December 2019 – GCR Ratings (“GCR”) has affirmed Standard Insurance Co., INC’s (“Standard Insurance”) national scale financial strength (formerly claims paying ability) rating of A(PH), with a Stable Outlook. GCR has also affirmed the international scale financial strength (formerly claims paying ability) rating on Standard Insurance of BB, with a Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Standard Insurance Co., INC Financial strength National A(PH) Stable Outlook
Financial strength International BB Stable Outlook

GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the ratings for Standard Insurance were placed ‘Under Criteria Observation’. GCR finalised the review for Standard Insurance under the released Criteria for Rating Insurance Companies, May 2019. As a result, the ratings for Standard Insurance have been reviewed in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.

Rating Rationale

The ratings on Standard Insurance reflect the strengths and weaknesses of the wider Echauz Holdings Corporation (“EHC”) group. Standard Insurance is the core operating entity within the group, accounting for 100% of total gross premiums and 99% of group assets. The group has a strong financial profile supported by very strong capitalisation and moderately sound earnings. These credit positives are somewhat tapered by intermediate liquidity strength. The group’s business profile is impacted by somewhat limited premium diversification.

Capitalisation was maintained at a very strong level, with the large capital base and low level of underwriting risk and market exposures giving rise to very high levels of risk adjusted capitalisation. Risk adjusted capitalisation is expected to be sustained at similar levels over the outlook horizon, supported by sound earnings potential and the absence of dividend pay-outs. This is expected to preserve the sizeable capital base capable of supporting the quantum of underwriting exposure.

The group’s earnings capacity is largely a function of Standard Insurance’s strong earnings, albeit tapered by the rest of the subsidiaries’ performance. The insurer reflected stable and consistent underwriting profits, partially mitigating limited upside from investment returns. In this respect, the five year aggregated underwriting margin equated to 7% (FY18: 6%; FY17: 8%), while the investment yield averaged 0%. Stable underwriting performance has been supported by a competitive loss experience, derived on the back of advanced risk modelling, multi-phase claims management, and established service provider relationships. In GCR’s view, earnings strength is likely to be sustained at similar levels over the outlook horizon.

The group’s competitive position is underpinned by Standard Insurance’s moderately strong competitive positioning. In this respect, the insurer was able to sustain its ranking amongst the top 10 players in the domestic market, with an estimated 4% of total short term insurance industry premiums, and relative market share of 2.7x. Moderately strong positioning was supported by the insurer’s market leadership in the motor business, with Standard Insurance’s extensive branch network and large pool of contracted car dealerships driving sound premium generation in this class. GCR expects the insurer to continue to defend its top tier position in motor insurance, in line with strategic objectives.

The insurer has a somewhat diversified portfolio, with two classes of business contributing materially to premiums. Note is taken, however, of the heavy reliance on motor, given the strategic focus and competitive advantage in this class. Nevertheless, high product concentration is partially mitigated by the high policy count (with the top five policyholders combined accounting for less than 2% of gross premiums) and relatively low product risk associated with this class (given management’s historical track record in sustaining motor profitability). Nevertheless, geographic diversification is viewed to be limited, given that all the premiums are locally sourced.

Liquidity metrics are intermediate, as evidenced by stressed financial asset coverage of net technical liabilities of 1.3x (FY17: 1.4x), and operational cash coverage of 12 months (FY17: 13 months). GCR expects liquidity measures to remain within similar range, supported by stable asset allocation and sound cash flow generation potential.

Outlook Statement

The Stable Outlook reflects expectations that the financial profile will continue to be supported by very strong capitalisation and sound earnings, while the business profile is not expected to change materially over the outlook horizon.

Rating Triggers

Positive rating action may stem from sustained improvement in earnings and/or liquidity. This would need to be supported by risk adjusted capitalisation remaining at very strong levels. Conversely, downward rating pressure may arise from a material reduction in capitalisation, or from a sustained weakening in earnings.

Analytical Contacts

Primary analyst Yvonne Mujuru Sector Head: Insurance Ratings
Johannesburg, ZA YMujuru@GCRratings.com +27 11 784 1771
Secondary analyst Siyuan Lu Associate Analyst
Johannesburg, ZA SiyuanL@GCRratings.com +27 11 784 1771
Committee chair Vinay Nagar Senior Analyst
Johannesburg, ZA Vinay@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Insurance Companies, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, June 2019
GCR Insurance Sector Risk Scores, November 2019

Ratings History

Rating class Review Rating scale Rating Outlook/Watch Date
Claims paying ability Initial National A-(PH) Stable October 2013
Initial International B+ Stable October 2013
Last National A(PH) Positive October 2018
Last International BB Stable October 2018

Risk Score Summary

Risk scores Standard Insurance CO., INC
Operating environment 15.50
Country risk score 9.00
Sector risk score 6.50
Business profile (0.25)
Competitive position 0.50
Premium diversification (0.75)
Management and governance 0.00
Financial profile 1.75
Earnings 0.25
Capitalisation 2.00
Liquidity (0.50)
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 17.00

Glossary

Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
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.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Technical Liabilities The sum of Net UPR and Net OCR IBNR.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
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.

SALIENT POINTS OF ACCORDED RATING

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to Standard Insurance Co., INC. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

Standard Insurance Co., INC participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Standard Insurance Co., INC and other reliable third parties to accord the credit ratings included:

  • The audited financial results to 31 Dec 2018
  • Four years of comparative audited numbers
  • Unaudited interim results up to 30 June 2019
  • Budgeted financial statements for 2019
  • The current year reinsurance summary
  • Other related documents.
image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.