GCR has reaffirmed Santam Limited’s (“Santam”) national scale ZAR currency claims paying ability rating at AAA (triple A). Furthermore, the national scale ZAR currency long term subordinated debt rating was maintained at AA- (double A minus).
Santam is the market leader in the short term insurance industry, with an estimated 22% share of GWP. In this regard, the insurer’s strong brand and substantial underwriting capacity are expected to sustain its market leadership position. Santam continues to outperform its peers in terms of underwriting profitability, supported by the high degree of risk diversification and economies of scale, as well as strong representation in certain profitable specialist segments. The insurer uses a well developed risk based capital model to determine appropriate economic capital levels and manage risks within clearly defined risk appetite criteria. In this regard, the international solvency margin remains well above the internally calculated economic risk capital requirement and is in line with GCR’s comfort level for the current rating. The ratings were further supported by the insurer’s large and diversified investment portfolio, which has adequate liquidity. Total listed equity portfolio constitutes 53% of total capital, although risk is mitigated by the use of derivative instruments, with the unhedged portfolio representing 25% of capital. The funds from the debt issue are ring-fenced in a separate portfolio and invested in cash and fixed interest bearing investments, with a minimum benchmark return equivalent to Santam’s bond performance. Debt serviceability measures remain sound.
Notwithstanding the above, the high level of competition in the insurance industry is likely to persist in the near term. Furthermore, recent new entrants could introduce a greater degree of pricing pressure.
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