Johannesburg, 29 November 2017 — 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 positioning. The insurer is the second largest participant in the market, with a 9% share of GWP, and a premium base of around 6.9x the industry average. Going forward, GCR considers Hollard to be well placed to sustain its competitive strength, supported by its extensive intermediary network, diversified product offering and brand strength. Furthermore, GCR views Hollard’s revenue stream to be very well diversified across policyholders and classes of business. In this respect, the insurer occupies a top tier position across all 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 was stable at FY17, with large dividend extractions having been offset by reducing market risk and a Tier-II debt issue in FY17. The insurer plans to manage regulatory SCR cover around a sound threshold going forward, with capital strength expected to be sustained over the rating horizon, supported by the active risk based capital management approach. Hollard’s liquidity metrics have been sustained within a moderately strong range, and are expected to register at similar levels going forward, given the insurer’s asset liability matching approach. Furthermore, net deductibles are limited to conservative levels against capital, while the reinsurance programme reflects a strong aggregate counterparty credit profile.
The exposure to group and other insurance related investments has been actively diluted in recent years, resulting in enhanced asset quality. In this respect, with most of the balance sheet restructuring having been completed, higher risk assets are expected to be maintained at moderately conservative levels over the outlook horizon.
Hollard has evidenced a moderately strong level of earnings capacity over the review period, with healthy investment yields offsetting limited underwriting profitability. Following a reduction in the average investment yield, net profitability moderated in FY17, with return on net earned premiums reducing to 8% (review period average: 12%) and budgeted at around 6% for FY18 (albeit assuming limited market value appreciation). Accordingly, the ability of the insurer to successfully turnaround underwriting performance is expected to be a key earnings driver over the short to medium term.
Upward rating movement could be supported by a sustained strengthening in underwriting profitability and/or enhanced liquidity metrics. In contrast, negative rating action could follow a weakening in key credit protection metrics or a reduction in medium term earnings capacity.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (December 2008)|
|Claims paying ability: AA(ZA)|
|Last rating (November 2016)|
|Claims paying ability: AA(ZA)|
|Primary Analyst||Committee Chairperson|
|Susan Hawthorne||Yvonne Mujuru|
|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 2017.
RSA Short Term Insurance Bulletins, 2001-2016.
Hollard rating reports, 2008 – 2016
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 rating has been disclosed to The Hollard Insurance Company Limited with no contestation of the rating.
The information received from The Hollard Insurance Company Limited and other reliable third parties to accord the credit rating included:
- Audited annual financial statements to 30 June 2017
- Four years of comparative financial statements to 30 June
- Budgeted financial results to 30 June 2018
- Statutory returns to 30 June 2017
- The current year reinsurance programme summary
- Other relevant company specific 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
|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.|
|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.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|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.|
|Earned Premium||That part of the premium applicable to the expired part of the policy period.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|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.|
|Intermediary||A third party in the sale and administration of insurance products.|
|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||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|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.|
|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.|
|Yield||Percentage return on an investment or security, usually calculated at an annual rate.|
For a more detailed glossary of terms, please click here
GCR affirms The Hollard Insurance Company Limited’s rating of AA(ZA); Outlook Stable