Announcements

GCR downgrades Zurich Insurance Company South Africa Limited’s rating to AA-(ZA); Outlook Stable.

Johannesburg, 8 Aug 2014 — Global Credit Ratings has today downgraded the national scale claims paying ability rating assigned to Zurich Insurance Company South Africa Limited to AA-(ZA); with the outlook accorded as Stable.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Zurich Insurance Company South Africa Limited (“Zurich SA”) based on the following key criteria:

GCR views profitability to represent a key rating weakness, giving rise to the rating downgrade. Zurich SA has registered underwriting deficits throughout the review period, pressured by heightened levels of both claims experiences and delivery costs in respective years. The sustained nature of profit strain, combined with the deep deficits over the past two years (which have continued into F14), are viewed to present a high degree of profit risk over the short to medium term, with the translation of portfolio corrective measures into profit restoration likely to take time. Note was also taken of the deterioration in the insurer’s business profile over the duration of the review period, stemming from a sharp reduction in market share.

Capital adequacy remains above the minimum floor for the current rating band. However, should the current underwriting pressure persist, this could lead to additional capital erosion and associated solvency compression over the rating horizon. The investment portfolio includes a large portion of cash and interest bearing instruments, with the composition projected to remain stable over the medium term. Accordingly, key liquidity measures are expected to be maintained at adequate levels. The high quality of reinsurance counterparties and moderate risk and event retention levels represent a relative rating strength.

The rating is enhanced by the implied support from the Zurich Insurance Group Limited (“ZIG”), with the insurer sharing a common brand and benefitting from substantial reinsurance support from the group. Furthermore, a degree of strategic alignment exists in terms of the group’s multinational corporate strategy.

Going forward, management’s stringent execution of core targets is viewed to be key to elevating credit strength over the medium term. In contrast, erosion of capital adequacy or other key rating criteria to levels that are no longer commensurate with the AA band rating could result in negative rating action. In addition, a reduction in the implied degree of support from ZIG could impact on the rating.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY

Initial rating (July/2001)
Claims paying ability: AA(ZA)
Outlook: Stable

Last rating (Aug/2013)
Claims paying ability: AA(ZA)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Susan Hawthorne
Analyst
(011) 784-1771
Susanh@globalratings.net

Committee Chairperson
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Insurance Companies (Updated July 2014)
Glossary of Terms/Ratios (February 2014)
Zurich SA rating reports, 2001 – 2013
RSA Short Term Insurance Bulletins, 2001 – 2013

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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

Zurich Insurance Company South Africa 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 Zurich Insurance Company South Africa Limited with no contestation of the rating.

The information received from Zurich Insurance Company South Africa Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements to December 2013, latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts to May 2014, the 2014 reinsurance programme summary, the quantitative and qualitative statutory returns to December 2013, the quarterly statutory return to March 2014 and other relevant 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.

GCR downgrades Zurich Insurance Company South Africa Limited’s rating to AA-(ZA); Outlook Stable.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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