Johannesburg, 03 November 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to The Standard Insurance Co., Inc at A-(PH), with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to The Standard Insurance Co., Inc of BB-, with the outlook accorded as Stable. The ratings are valid until October 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to The Standard Insurance Co., Inc (“Standard Insurance”) based on the following key criteria:
Capitalisation is a key rating strength for Standard Insurance. Risk adjusted capitalisation is viewed to be strong, supported by manageable levels of underwriting and market risk relative to the insurer’s capital base. Capital strength is expected to be maintained at strong levels over the rating horizon.
GCR views Standard Insurance’s earnings capacity to be strong. The insurer has recorded strong and stable underwriting margins over the review period. The insurer’s competitive loss experience has been underpinned by stringent underwriting protocols (backed by software-based risk modelling), sophisticated claims management procedures, as well as well-established service provider relationships. This supports GCR’s expectations of sound future net profitability which, coupled with conservative dividend disciplines, continues to facilitate capital build.
Liquidity is viewed to be strong, with the insurer’s cash levels benefitting from high operating cash generation. In this regard, claims cash coverage rose to 25 months (FYE13: 18 months), while cash coverage of net technical liabilities (both on a nominal and adjusted basis) improved materially. Going forward, stable asset allocation is expected to retain liquidity at healthy levels.
Standard Insurance continues to reflect a moderately strong competitive position. In this regard, the insurer’s market share remained relatively stable at 4% in 2014, representing 3x the average revenue generated by the industry. This is underpinned by an extensive branch network, as well as a large pool of contracted car dealerships.
Reinsurance counterparty strength is considered robust, given that placements pertain exclusively to highly rated international participants. Whilst the motor per risk net deductible is somewhat elevated relative to capital (5% at FYE14), the overwhelming majority of associated motor risks are carried at significantly lower sum insured values (largely mitigating the potential for negative financial impact stemming from a high frequency of unrelated accidents).
The insurer’s risk base is heavily geared towards motor business, which accounted for a higher 96% of NWP in FY14. Accordingly, earnings diversification by product is viewed to be limited. However, the very high policy count of this business, coupled with the low product risk associated with this line, is viewed to facilitate high earnings quality.
Given that the insurer’s financial assets are domiciled exclusively in the Philippines, its international scale rating remains impacted by the country’s sovereign rating, which currently stands at BBB.
An upward adjustment of the rating or the outlook may emanate from a strengthening in metrics pertaining to asset quality, liquidity and reserving. This is expected to be accompanied by sustained healthy levels of risk adjusted capitalisation and the adherence to current underwriting principles. Conversely, downward rating pressure 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.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (October 2013)||Initial rating (October 2013)|
|Claims paying ability: A-(PH)||Claims paying ability: B+|
|Outlook: Stable||Outlook: Stable|
|Last rating (October 2014)||Last rating (October 2014)|
|Claims paying: A-(PH)||Claims paying: BB-|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Fidelis Masheka|
|Sector Head: Insurance Ratings||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 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.
The 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 ratings have been disclosed to The Standard Insurance Co., Inc with no contestation of the rating.
The information received from The Standard Insurance Co., Inc and other reliable third parties to accord the credit ratings included:
- The audited financial statements to 31 December 2014
- 4 years of comparative audited numbers
- Unaudited interim results to 30 June 2015
- Budgeted financial statements for 2015
- 2015 reinsurance cover notes, and
- Other related documents.
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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Assets||The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|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.|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|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.|
For a more detailed glossary of terms/acronyms please click here