Johannesburg, 15 November 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to The Hollard Insurance Company Limited of AA(ZA), with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to The Hollard Insurance Company Limited (“Hollard”) based on the following key criteria:
The rating is underpinned by Hollard’s very strong competitive position. The insurer is the second largest participant in the market, with a 9% share of GWP, and a premium base of 8.5x the industry average. Going forward, GCR considers Hollard to be well placed to sustain its competitive strength, supported by its extensive intermediary network, strong brand and continued momentum in the corporate segment. GCR views Hollard’s revenue stream to be very well diversified across policyholders, buying segments and procurement channels. The insurer occupies a top tier position in six of the key statutory lines of business, each of which reflects material premium scale.
Hollard’s capitalisation is assessed to be moderately strong. Solvency Capital Requirement (“SCR”) coverage moderated at FYE16, which was primarily attributed to balance sheet restructuring. In this regard, Hollard transferred certain strategic investments to the holding company via a dividend in specie in FY16. Accordingly, total capital decreased by 15% to R3.7bn at FYE16 (FYE15: R4.4bn). This is nevertheless viewed in the context of reduced asset risk, as well as the low levels of product risk associated with the motor and property orientated portfolio. The insurer plans to manage SCR cover within a band of 1.25x to 1.5x going forward. Accordingly, risk based capitalisation is expected to remain at moderate to strong levels, although may be sensitive to dividend payments.
The exposure to group and other insurance related investments historically introduced a heightened degree of systemic risk. In this regard, the sale of a large portion of strategic investments has enhanced asset quality, with higher risk assets projected to be maintained at fairly conservative levels post balance sheet restructuring. Key liquidity measures have been sustained at moderate to strong levels, and are expected to be maintained within a sound range, given the insurer’s active asset liability matching approach.
Earnings capacity is viewed to be moderately strong. The diversified business mix and relatively large niche component have assisted in maintaining sound cross cycle technical profitability. However, this is offset by the higher operational costs associated with the partnership focused business model, with Hollard’s underwriting margin trailing that of its competitors (although exhibiting a lower degree of volatility). In this respect, earnings capacity is supported by the large investment portfolio, which has contributed towards healthy returns on revenue (review period average: 15%). Earnings protection also stems from the reinsurance programme, which reflects a strong counterparty credit profile and limits net deductibles to conservative levels against capital.
Positive rating action could follow a sustained strengthening in underwriting profitability metrics, together with enhanced levels of capitalisation. In contrast, the rating is sensitive to a reduction in risk adjusted capitalisation or liquidity. Furthermore, a protracted weakening in net profitability could give rise to downward rating movement.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (December 2008)|
|Claims paying ability: AA(ZA)|
|Last rating (December 2015)|
|Claims paying ability: AA(ZA)|
|Primary Analyst||Committee Chairperson|
|Susan Hawthorne||Marc Chadwick|
|Senior Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Hollard rating reports, 2008 – 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.
The Hollard 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 ratings have been disclosed to The Hollard Insurance Company Limited with no contestation of the ratings.
The information received from The Hollard Insurance Company Limited and other reliable third parties to accord the credit ratings included:
- The latest audited financial statements to 30 June 2016
- Four years of comparative audited financial statements to 30 June
- Full year budgeted financial statements to 30 June 2017
- Statutory return to 30 June 2016
- A summary of the 2016/2017 reinsurance programme
- Other relevant documents
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>
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Balance Sheet||Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|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.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Deductible||The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|International Scale Rating LC||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.|
|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.|
|Net Profit||Trading/operating profits after deducting the expenses detailed in the profit and loss account such as interest, tax, depreciation, auditors’ fees and directors’ fees.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.|
|Policyholder||The person in actual possession of an insurance policy.|
|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.|
|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.|
|Systemic Risk||The risk inherent to the entire market or an entire market segment.|
|Total Capital||The sum of owner’s equity and admissible supplementary capital.|
|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.|
For a detailed glossary of terms please click here
GCR affirms The Hollard Insurance Company Limited’s rating of AA(ZA); Outlook Stable