Global Credit Ratings has accorded the above credit rating(s) on Hannover Reinsurance Africa Limited (“Hannover Re Africa”) based on the following key criteria:
The change in the Hannover Re Africa international and national scale ratings follows the downgrade of the South African sovereign rating at the start of 2013, and the subsequent change in GCR’s mapping tables. Hannover Re Africa’s rating is enhanced by the rating support framework derived from Hannover Re Germany (rated AA- on an international scale), given the strategic importance of Hannover Re Africa to the international group. This view is premised on strong operational integration, including systems, branding, policies and mandates, and strategic targets. Further, the strategic benefit of Hannover Re Africa to the international group is underpinned by the significant cumulative profits transferred throughout the review period. Material operational support from the Hannover Group is also procured by way of extensive retrocession cover, evident technical support, and a letter of credit.
Competitive positioning is viewed as a key rating strength. Hannover Re Africa is a top tier player in the South African reinsurance market, with a strong brand and favourable market reputation. GCR’s view on management and corporate strategy enhances the assessment of the reinsurer’s solid business profile. The reinsurer’s business model allows for participation at multiple levels of the insurance value chain, providing access to profitable niche business through its subsidiaries. Hannover Re Africa has looked to supplement its core portfolio with specialist risk types, increasing its presence as a lead reinsurer.
Hannover Re Africa has displayed a well-controlled capital management strategy throughout the review period, supported by an internal capital allocation model. The international and statutory solvency margins are forecast to remain at levels supportive of the reinsurer’s current rating. Sound capitalisation is complemented by a strong and entrenched risk management culture, comparatively low underwriting volatility and prudent reserving approach. Furthermore, Hannover Re Africa has a low risk balance sheet, with cash-based non-strategic investments limiting capital exposure to market volatility, while underpinning sound liquidity metrics.
An offsetting factor is the internalised nature of the business model, which presents a degree of concentration risk in terms of both growth and claims experience in terms of performance, while also exposing the capital base to potential systemic risk. Note is taken of the relatively high retention per risk and event.
The reinsurer’s current CPA rating is at the rating scale ceiling. Downward pressure on Hannover Re Africa’s rating could occur if the strategic importance of the insurer to the group were to weaken, or the financial strength of the parent were to deteriorate significantly. Furthermore, on a stand-alone basis, downward rating pressure would emanate from a sustainable weakening in solvency and liquidity metrics to levels outside of GCR’s parameters for the current band, or a notable decline in the reinsurer’s market position and performance.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (Nov/2007)||Initial rating (Nov/2007)|
|Claims paying ability: AA+(ZA)||Claims paying ability: A-|
|Outlook: Stable||Outlook: Stable|
|Last rating (July/2012)||Last rating (July/2012)|
|Claims paying ability: AA+(ZA)||Claims paying ability: A|
|Outlook: Stable||Outlook: Stable|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
|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.
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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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Hannover Reinsurance 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 Hannover Reinsurance Africa Limited with no contestation of the rating.
The information received from Hannover Reinsurance Africa Limited and other reliable third parties to accord the credit rating included the 2012 audited 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, the current year retrocession cover notes, actuarial valuation statement, debtors provisioning policy document, ERM processes/framework (including catastrophe management framework), reserving methodologies, capital management policy.