Johannesburg, 1 Apr 2014 — Global Credit Ratings has today assigned an initial national scale claims paying ability rating of A-(PH) to Standard Insurance Company (Philippines); with the outlook accorded as Stable. Furthermore, Global Credit Ratings has assigned an initial international scale claims paying ability rating of B+ to Standard Insurance Company (Philippines); with the outlook accorded as Stable. The rating(s) are valid until 10/2014.
RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) on Standard Insurance Company (Philippines) based on the following key criteria:
Standard started operations in the Philippines in 1958 and became wholly owned by Echauz Holdings Corporation in 2008. Standard is a top-tier player in the Philippines short term insurance market, accounting for approximately 4% of gross written premiums in F12 (the ninth largest insurer in the industry). The insurer focuses on non-compulsory third party liability (“NCTPL”) motor (loss and damage), and general fire. Standard’s market share is estimated to be 18% and 19% in these lines respectively (based on GCR’s estimates for industry growth metrics, pending finalisation by the IC).
The rating recognises Standard’s well established position and strong branding within the local short term insurance sector. Market presence is underpinned by the insurer’s leading position in private third party motor liability, augmented by an extensive distribution network, including exclusive agreements with a number of motor dealerships. Capitalisation levels have remained adequate over the review period. Capital sufficiency is viewed within the context of the insurer’s healthy profit generation, limited financial market exposure and adequate retention levels per risk and event. The insurer has a demonstrated track record of managing catastrophe related losses, underpinned by comprehensive risk modeling software and reinsurance protection, coupled with stringent risk underwriting, as well as its visible and extensive infrastructure. This has supported a relatively well contained earned loss ratio throughout the review period, including high loss events. As such, Standard has reported underwriting profits over the review period.
Liquidity pressures represent a constraint to the rating, owing to the large portion of working capital tied up in receivables, which has increased the reliance on debt to fund the entity. Moreover, the large level of outstanding debtors’ balances, accounting for a high 49% of the balance sheet and 58% of GWP, could potentially undermine capital.
Standard exhibits a high risk base concentration towards motor, which may constrain overall premium development and is subject to the broader market competitive pressures. Note is taken of the declining contribution of property business from the agreement with Zurich Financial Services, which has exacerbated this concentration. The international scale rating was impacted by the Philippines’ sovereign credit rating of BBB-, given that the insurer’s assets are locally domiciled, in the domestic currency.
Upward movement on the rating or outlook could develop with a notable strengthening in liquidity metrics, coupled with a significant reduction in debtor exposures. This must be accompanied by the maintenance of risk appropriate solvency levels, with a formalised capital management policy, as well as increased underwriting margin stability and continued growth augmenting earning diversification. A downgrade may arise if debtor exposures begin to impact expenses to a greater degree. Downward rating pressure may also emanate from the solvency margin falling below GCR’s comfort level for this rating, or should the strong underwriting trend reverse, on a sustained basis.
NATIONAL SCALE RATINGS HISTORY | INTERNATIONAL SCALE RATINGS HISTORY |
Initial rating (March/2014) | Initial rating (March/2014) |
Claims paying ability: A-(PH) | Claims paying ability: B+ |
Outlook: Stable | Outlook: Stable |
Last rating (March/2014) | Last rating (March/2014) |
Claims paying ability: A-(PH) | Claims paying ability: B+ |
Outlook: Stable | Outlook: Stable |
ANALYTICAL CONTACTS | |
Primary Analyst | Secondary Analyst |
Benjamin Schmidt | Eric Mafu |
Senior Analyst | Junior Analyst |
+27 11 784 1771 | +27 11 784 1771 |
schmidt@globalratings.net | mafu@globalratings.net |
Committee Chairperson | |
Marc Chadwick | |
Sector Head: Insurance | |
Johannesburg | |
+27 11 784 1771 | |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Short Term Insurance and Reinsurance Companies
RATING LIMITATIONS AND DISCLAIMERS
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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.
Standard Insurance Company (Philippines) 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 Company (Philippines) with no contestation of the rating.
The information received from Standard Insurance Company (Philippines) and other reliable third parties to accord the credit rating included the 2012 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, catastrophe management framework and other related rating 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.