Announcements

GCR affirms The Standard Insurance Co., Inc.’s rating of A-(PH); Outlook Stable.

Johannesburg, 27 Nov 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to The Standard Insurance Co., Inc. of A-(PH); with the outlook accorded as Stable. Furthermore, the international scale rating assigned to The Standard Insurance Co., Inc. was upgraded to BB-, with the outlook accorded as Stable. The rating(s) are valid until 10/2015.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to The Standard Insurance Co., Inc. (“Standard Insurance”) based on the following key criteria:

The demonstrated underwriting track record lends significant support to the rating, with the insurer posting consistently healthy, above industry norm margins over the review period. This is underpinned by stringent underwriting protocols (backed by software-based risk modelling), highly sophisticated claims management procedures, as well as well-established service provider relationships, translating to a competitive loss experience advantage. With these underlying internal mechanisms viewed as sustainable, this supports GCR’s expectations of sound future net profitability, which coupled with conservative dividend disciplines continues to aid capital build. Further, risk adjusted capitalisation is viewed to be moderately strong, sustained by manageable levels of underwriting and market risk relative to the insurer’s capital base. Capital quality is also assessed to be high, comprising mainly share capital and distributable reserves. Stability in the premium and investment mixes is likely to see risk based capitalisation maintained at a sound level over the rating horizon, whilst the international solvency margin is projected to continue its gradual upward trajectory.

Market positioning is viewed as reasonably entrenched, with continued strong motor volumes sustaining premium levels at a sound multiple of the prevailing aggregate market premium (3.1x in F13). This is underpinned by an extensive branch network, as well as a large pool of contracted car dealerships and repair workshops.

Liquidity is considered adequate, with cash coverage of net technical liabilities strengthening to 0.7x in F13 (F12: 0.6x). GCR’s view of asset quality is partly offset by measures of asset-liability-matching. In this regard, total investment portfolio coverage of technical provisions is viewed to be thin, with a high quantum of balance sheet resources tied up in working capital. Concentration risk remains somewhat elevated, with the net premium spread evidencing a strong gearing towards motor (at 89% in F13). However, in mitigation, this line of business continues to register healthy profits on the underwriting line, thereby significantly bolstering overall net earnings.

Reinsurance counterparty strength is considered robust, given that placements pertain exclusively to highly rated international participants. Whilst per risk net deductibles are somewhat elevated relative to capital (6% at FYE13), arising accumulation risk is viewed as moderate, with the overwhelming majority of associated motor risks carried at significantly lower sum insured values.

The upgrade in the international scale rating is supported by an improved macroeconomic outlook of the Philippines, which has seen its sovereign credit rating increase for the 2nd consecutive year in 2014 to BBB. This provides rating uplift to the insurer’s international scale rating, given that all of its financial assets are domiciled locally.

The stable outlook reflects GCR’s expectations for rating constancy over the short term. Over the medium to long term, an upward adjustment of the rating or the outlook remains subject to the insurer sustainably improving asset quality by means of reducing debtor exposures, coupled with a strengthening in adjusted key liquidity metrics beyond historic norms. This is expected to be accompanied by sustained healthy levels of risk adjusted capitalisation and the adherence to current underwriting principles. Conversely, downward rating compression could emanate from a decline in key liquidity metrics, sustained operating cash flow pressures, a protracted weakening in risk adjusted capitalisation well below the current level, as well as a prolonged negative underwriting trajectory.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATINGS HISTORY
Initial rating (Oct/2013) Initial rating (Oct/2013)
Claims paying ability: A-(PH) Claims paying ability: B+
Outlook: Stable Outlook: Stable
Last rating (Oct/2013) Last rating (Oct/2013)
Claims paying ability: A-(PH) Claims paying ability: B+
Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Benjamin Schmidt
Senior Analyst
(011) 784-1771
Schmidt@globalratings.net

Committee Chairperson
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies, July 2014
Standard Insurance Co., Inc. rating reports 2013.

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.

Standard Insurance Co., Inc. 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 Standard Insurance Co., Inc. with no contestation of the rating.

The information received from Standard Insurance Co., Inc. and other reliable third parties to accord the credit rating(s) included 2013 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year 2014 detailed budgeted financial statements, year to date management accounts to 30 September 2014, retrocession cover notes for 2014, as well as 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.

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