Johannesburg, 09 Oct 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to THI Insurance (Private) Limited of BB+(ZW); with the outlook accorded as Positive. The rating(s) are valid until 9/2014.
Global Credit Ratings has accorded the above credit rating(s) on THI Insurance (Private) Limited based on the following key criteria:
THI Insurance (Private) Limited’s (“THI”) niche position as the leading domestic tobacco hail insurer is underpinned by linkages with strong reinsurance counterparties, as well as long standing relationships with farmers and tobacco merchants. THI’s efforts to consolidate its market position are viewed positively, although note is taken of the volatile, hail-driven loss trajectory. This could continue to drive erratic underwriting performance until operations attain the targeted scale, given the insurer’s conservative retention. In this regard, cognisance is taken of THI’s broadening business mix, which will serve to reduce its exposure to challenges specific to agriculture insurance.
THI’s relatively conservative investment philosophy is supportive of adequate liquidity metrics. Management plans to maintain a low risk investment approach going forward, in support of its aggressive medium term business plan. However, the rating is considerably constrained by the placement of cash with related counterparties, and elevated intragroup exposures through loans and unit trust administration (1.5x the capital base as at July F13). According to management, these exposures will be reduced to nominal levels in the short term. International solvency metrics are expected to remain robust, trending over 100% in the medium term, although capital is considered low relative to underlying hail treaty exposures and potential accumulation risk.
A demonstrated track record of sound top line growth and underwriting profitability, in conjunction with robust solvency and liquidity would place upward pressure on the rating. Continued reduction of intercompany exposures, in line with recently passed board resolutions, would also bode positively. However, a material deterioration of solvency and liquidity metrics, either due to constrained profitability or sustained/enhanced large intragroup exposures could exert downward pressure on the rating. Note was also taken of the highly uncertain socio-political outlook, which is likely to exacerbate challenges within the operating climate, constraining capital inflows and economic growth. Should this deteriorate further, the rating ceiling of the insurance sector as a whole would likely be reviewed.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Aug/2012)
Claims paying ability: BB+(ZW)
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s criteria For Rating Short Term Insurance and Reinsurance Companies.
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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.
THI Insurance (Private) 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 THI Insurance (Private) Limited with no contestation of the rating.
The information received from THI Insurance (Private) Limited and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plustwo years of comparative numbers), full year detailed budgeted financial statements, unaudited year to date management accounts to 31 July 2013, the current year reinsurance cover notes, debtors provisioning policy document, risk management framework, reserving methodologies, and the capital management policy.