Global Credit Ratings has accorded the above credit rating(s) on Altfin Insurance Company Limited based on the following key criteria:
Altfin Insurance Company Limited (“Altfin”) is a 100% owned subsidiary of Altfin Holdings Limited, which also owns Altfin Life Assurance and Altfin Health. In turn, Interfin Investments Private Limited (“Interfin Investments”) controls a 68% stake in the holding company. As detailed in a previous subscriber alert, Interfin Investment’s flagship, Interfin Banking Corporation (“Interfin”), was placed under recuperative curatorship in June 2012, which was extended to June 2013. Owing to various ongoing challenges, the curatorship period was recently further extended to December 2014, to take into account developments in the economy that have hampered capital raising initiatives. An amount of US$1.3m (equating to 73% of Altfin’s FYE12 capital) was held with Interfin at the time of its curatorship, significantly undermining the insurer’s financial position.
Emanating from the above concerns, Altfin’s capitalisation remains weak and insufficient to support its business model. Furthermore, in view of the recent extension of affiliate Interfin’s curatorship to December 2014, key solvency metrics are forecast to remain subdued. Moreover, adjusting capital to exclude sizeable intercompany loans severely constrains solvency (adjusted solvency margin of 7% in F12). In addition, due to the significant exposure to Interfin, unencumbered cash balances are marginal, thereby heightening liquidity risk. This is viewed as a significant constraint to the rating. Liquidity is further undermined by the protracted cash conversion cycle and constrained operating cash flows. In GCR’s view, capital raising initiatives over the short to medium term are deemed highly unlikely, with Altfin’s financial position expected to remain severely constrained. Underwriting results over the review period have been undermined by the persistently adverse loss experience (driven by motor and fire), coupled with a cumbersome delivery cost structure.
In view of the recent downgrade of Altfin from BB-(zw) to B(zw), an upward adjustment of the rating is considered unlikely in the short term. Over the medium to long term, an upgrade remains subject to the adequate recapitalisation of the insurer, leading to a meaningful recovery in key solvency and liquidity metrics. Negative rating action may emanate from a further depletion of already constrained unencumber`ed invested assets, and/or sustained underwriting losses. 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 (May/2009)|
|Claims paying ability: BBB-(ZW)|
|Rating outlook: Stable|
|Last rating (Nov/2012)|
|Claims paying ability: BB-(ZW)|
|Rating watch: Yes|
|Primary Analyst||Secondary Analyst|
|Marc Joffe||Damien Dube|
|Sector Head: Insurance||Junior Analyst|
|+27 11 784 1771||+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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/RATING-SCALES-DEFINITIONS. 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.
Altfin Insurance Company 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 Altfin Insurance Company Limited with no contestation of the rating.
The information received from Altfin Insurance Company Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus three years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, the current year reinsurance cover notes, reserving methodologies, capital management policy.