Johannesburg, 31 Jan 2014 — 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.
RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) on The Hollard Insurance Company Limited (“Hollard”) based on the following key criteria:
Hollard’s position within the top tier of the South African insurance market, complemented by its strong and stable management team, remains supportive of the rating. Notably, Hollard’s recent merger with Etana Insurance Company Limited is expected to fortify the insurer’s market positioning, while augmenting Hollard’s business profile through enhanced penetration of the commercial and corporate space.
The insurer’s franchise value is underpinned by a business model that allows for product and distribution channel differentiation. This notwithstanding, the more segmented nature of the various underwriting units gives rise to a degree of operational risk. Note is taken, however, of the revised divisional structure, which has coincided with an emphasis on refining risk management practices. Capitalisation remains strong, as reflected by the elevated international solvency margin and statutory risk adjusted measures. Capital adequacy is supported by low exposure to long tail risk types and prudent risk retention levels. Capitalisation is forecast to remain at an adequate level in terms of GCR’s requirement for the current rating, and is supportive of the company’s expansionary business plans.
Hollard displays a sizeable investment portfolio, supported by sound liquidity and contained exposure to capital market volatility. The insurer displays some moderate asset concentration towards privately held insurance related assets. Whilst note is taken of the execution of the medium strategy to reduce these related strategic holdings, a degree of industry concentration risk remains present.
Hollard continues to maintain a cross cycle earned loss ratio that is below both the industry and peer group averages. This has been supported by the broad based and entrenched distribution networks, which focus on niche sub-segments providing diversification to the risk base and supporting its market profile. The delivery cost structure associated with the business model is elevated, relative to the peer group and the broader industry average. Note is, however, taken of the linkage to the loss experience, which acts as a partial expense moderator during elevated claims periods. Increasing competition in the specialist and commoditised lines segment is likely to constrain growth in Hollard’s traditional target market. Note is, however, taken of the targeted growth strategy on the corporate and industrial risk base, which will be supported by the acquisition of a core subsidiary.
Upward movement of the rating or outlook could develop should the insurer demonstrate a marked increase in underwriting margin headroom, while attaining positive medium term growth. Positive rating action may also follow further improvement in capital flexibility through the derisking of the investment portfolio, as well as the implementation of core strategic targets. Downward rating pressure may arise if a sustained deterioration in market positioning or operating performance is evidenced. Furthermore, the solvency margin falling below GCR’s comfort level for this rating on a sustained basis, and/or a weakening in liquidity metrics, may result in negative ratings pressure.
NATIONAL SCALE RATINGS HISTORY | |
Initial rating (Dec/2008) | |
Claims paying ability: AA(ZA) | |
Outlook: Stable | |
Last rating (Dec/2012) | |
Claims paying ability: AA(ZA) | |
Outlook: Stable | |
ANALYTICAL CONTACTS | |
Primary Analyst | |
Marc Chadwick | |
Regional Sector Head: Insurance | |
+27 11 784 1771 | |
chadwick@globalratings.net | |
Committee Chairperson | |
Eyal Shevel | |
Sector Head: Corporates | |
+27 11 784 1771 | |
shevel@globalratings.net | |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies
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/RATING-SCALES-DEFINITIONS. 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/s 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 the 2013 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, unaudited year to date management accounts to September 2013, the current year reinsurance cover notes, debtors provisioning policy, reserving methodologies, capital management policy.
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.