Announcements

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

Johannesburg, 25 October 2018 — 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 rating outlook accorded as Positive. 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 2019.

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 factors:

The Positive outlook reflects the potential for upward rating movement should Standard Insurance’s earnings capacity register within a strong range, while maintaining very strong risk adjusted capitalisation and strong liquidity metrics.

The insurer’s earnings capacity is healthy, supported by stable and consistent underwriting profits, partially mitigating limited upside from investment returns. In this respect, the five year aggregated underwriting margin equated to 12% (FY17: 10%; FY16: 10%), while the investment yield averaged 0.4%. Stable underwriting performance has been supported by a competitive loss experience, derived on the back of advanced risk modelling, multi-phase claims management, and established service provider relationships. In GCR’s view, earnings strength may be sustained at similar levels over the outlook horizon, despite a change in regulation (which may result in higher net incurred claims).

Risk adjusted capitalisation remained at a very strong level, supported by a sizeable capital base catering for the quantum of insurance risk and limited market exposure. Accordingly, the international solvency margin equated to a very high 155% at FY17 (FY16: 149%; review period average: 140%). Healthy internal capital generation (with full profit retention), coupled with capital support from existing shareholders, are expected to sustain risk adjusted capitalisation at similar levels over the rating horizon.

Liquidity metrics, including government securities, remained strong, underpinned by the insurer’s conservative investment strategy. As such, cash coverage of average monthly claims and net technical liabilities equated to 33 months and 1.2x respectively at FY17 (FY16: 24 months and 1.0x respectively). GCR expects liquidity to remain within a strong range, supported by stable asset allocation and sound cash flow generation potential.

Standard Insurance reflects a strong business profile, supported by healthy competitive positioning, and high earnings quality (despite elevated product concentration). In this respect, the insurer’s estimated share of total short term insurance industry premiums equated to 4% in FY17, largely underpinned by Standard Insurance’s market leadership position in motor. However, the strategic motor focus has given rise to a high degree of product concentration, with motor constituting 79% of total GWP in FY17. Despite limited earnings diversification, the very high policy count of motor business, coupled with the low associated product risk, as well as management’s historical track record in sustaining motor profitability, is viewed to facilitate high earnings quality.

Reinsurance counterparty strength is considered robust, given that placements pertain exclusively to participants reflecting high international scale credit ratings. The per risk net deductible on motor moderated to a conservative level relative to capital at 1%, with the overwhelming majority of associated motor risks carried at significantly lower sum insured values (largely mitigating the potential for negative financial impact stemming from a high frequency of unrelated accidents).

The international scale rating is impacted by the insurer’s exposure to the Philippines’ sovereign rating, given that the insurer’s assets are locally domiciled, and revenue is locally derived.

Positive rating action may stem from a sustained strengthening in earnings capacity. This would need to be supported by risk adjusted capital adequacy and liquidity remaining at very strong and strong levels. Respectively, downward rating pressure could emanate from a decline in liquidity metrics, a protracted weakening in risk adjusted capitalisation, as well as a prolonged negative underwriting trajectory.

NATIONAL SCALE RATINGS HISTORY
 
Initial rating (October 2013)
Claims paying ability: A-(PH)
Outlook: Stable
 
Last rating (November 2017)
Claims paying ability: A(PH)
Outlook: Stable
INTERNATIONAL SCALE RATINGS HISTORY
 
Initial rating (October 2013)
Claims paying ability: B+
Outlook: Stable
 
Last rating (November 2017)
Claims paying ability: BB
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst Secondary Analyst
Yvonne Mujuru Linda Matavire
Sector Head: Insurance Ratings Junior Credit Analyst
(011) 784-1771 (011) 784-1771
ymujuru@globalratings.net lindam@globalratings.net
 
Committee Chairperson
Vinay Nagar
Senior Credit Analyst
(011) 784-1771
vinay@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated May 2018

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 ratings was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were 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 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.

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 2017

• Four years of comparative audited financial statements

• Full year budgeted financial statements to 31 December 2018

• Unaudited interim results to 30 June 2018

• Other relevant documents

The ratings above were solicited by, or on behalf of, the rated entity, 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

Accident An unplanned event, unexpected and undesigned, which occurs suddenly and at a definite place.
Assets A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
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.
Capital Base The issued capital of a company, plus reserves and retained profits.
Cash Funds that can be readily spent or used to meet current obligations.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
Contract An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the 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.
Diversification Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Experience A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time 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.
International Solvency Margin Measures the ability to cover current year’s written premiums using shareholder’s funds.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
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.
Loss The happening of the event for which insurance pays.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.
Pool An organisation of insurers or reinsurers through which particular types of risk are underwritten and premiums, losses and expenses are shared in agreed-upon amounts.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Rating Outlook A rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).
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. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.
Retention The net amount of risk the ceding company keeps for its own account.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Securities Various instruments used in the capital market to raise funds.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
Short Term Current; ordinarily less than one year.
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.
Sum Insured The maximum amount that an insurer will pay under a contract of insurance.
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.
Yield Percentage return on an investment or security, usually calculated at an annual rate.

For a detailed glossary of terms please click here

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

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