Johannesburg, 02 June 2016 — Global Credit Ratings has today upgraded Mayfair Insurance Company Limited’s national scale claims paying ability rating to A-(KE) from BBB+(KE), with the outlook accorded as Stable. The rating is valid until June 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Mayfair Insurance Company Limited (“Mayfair”) based on the following key criteria:
The rating upgrade reflects Mayfair’s strengthened earnings capacity, which is expected to be sustained at strong levels over the rating horizon. Profitability has been underpinned by prudent risk selection guidelines and general cost containment. As such, the insurer’s combined ratio continued to improve to 79% in FY15 (FY14: 82%), with the three year average equating to 84%.
Mayfair reflects very strong capitalisation, which is expected to persist going forward. This has been a function of very strong capital generation from operations. Accordingly, solvency metrics measured at very strong levels, with the international solvency margin registering at 156% at FYE15, and is projected to remain strong at 146% by FYE16.
Liquidity metrics have been maintained at strong levels, stemming from robust operating cash flow generation. This is evidenced by strong cash coverage of average monthly claims of 38 months (FY14: 27 months) and moderately strong net technical provisions cover of 0.8x (FYE14: 0.7x).
Nevertheless, risks in strategic assets are viewed to be elevated, and exposure levels are unlikely to reduce substantially in the medium term given high entrenchment.
Competitive position is considered limited, as reflected by the insurer’s low market share of 1.8% of industry gross premiums in FY15. Note is, however, taken of the insurer’s continued competitiveness in fire industrial business. As such, GCR views the insurer’s business mix to be moderately diversified, with aggregated product risk viewed to be limited. The net premium mix is underpinned by motor and workmen’s compensation, with fire industrial potentially playing an increasing role in the earnings distribution going forward.
Reinsurance is led by ZEP Re and material counterparties display moderate to strong credit protection metrics on ceded risk. Maximum exposures per event and risk are contained at levels viewed to be low, equating to 1% of capital at FYE15 (FYE14: 1.3%).
Future positive rating action may result from a substantial strengthening in market share with enhanced earnings diversification, while maintaining healthy underwriting margins as well as a sustained improvement in asset quality. Downward rating pressure could arise through a reduction in risk adjusted capitalisation. A more aggressive investment strategy, as well as a weakening in operating performance, may also reduce credit strength.
|NATIONAL SCALE RATINGS HISTORY|
|Initial/last rating (June 2015)|
|Claims paying ability: BBB+(KE)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Godfrey Chingono|
|Sector Head: Insurance Ratings||Analyst|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Mayfair rating report, 2015
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.
Mayfair 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 has been disclosed to Mayfair Insurance Company Limited with no contestation of the rating.
The information received from Mayfair Insurance Company Limited and other reliable third parties to accord the credit rating included:
- Audited financial results as per 31 Dec 2015
- 4 years of comparative audited numbers
- Unaudited interim results as per 31 Mar 2016
- Budgeted financial statements for 2016
- Financial Condition Report for 2015
- The current year reinsurance cover notes
- Other non-public statistical information
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Assets||The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Reinsurance||The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|Solvency||With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.|
|Statutory||Required by or having to do with law or statute.|
|Underwriting||The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.|
For a detailed glossary of terms please click here
GCR upgrades Mayfair Insurance Company Limited’s rating to A-(KE); Outlook Stable.