GCR withdraws Resolution Insurance Company Limited’s Credit Rating
GCR has withdrawn Resolution Insurance Company Limited’s (“Resolution”) claims paying ability rating of BBB(ZA) (triple B), at the request of the insurer. According to GCR’s rating definitions, this rating reflected an adequate claims paying ability. Protection factors were considered to be sufficient, although there is considerable variability in risk over time due to economic and/or underwriting conditions.
At the last rating review in 2011 GCR noted that notwithstanding the size of the insurer’s balance sheet, a major factor supporting the rating was the adequate level of capitalisation through the significant reinsurance support, which provided both capacity and solvency relief. Consistent with its business model, the quota share treaty underpins the insurer’s ability to meet increased capital requirements associated with growth and medium term underwriting risk. Consequently, the large commission receipts supported profitability on a net basis, which was anticipated to continue in the medium term. The underwriting performance has, however, been volatile over the review period, given the insurer’s business model and lack of diversification and relative size. This was expected to continue in the short to medium term until the business gained sufficient scale. With respect to asset management, Resolution’s investment strategy was considered conservative, with 79% invested in liquid assets, which provided further capitalisation support. Liquidity metrics were considered adequate.
Resolution’s business model centres on utilising Underwriting Management Agencies for the distribution of its products, thus focusing on a partnership approach. It is GCR’s opinion, however, that there is a higher level of operational risk associated with this type of “outsourcing” model.
GCR has not conducted a due diligence for the most recent financial period ending June 2012, with the last rating exercise conducted in the fourth quarter of 2011. As such, GCR cannot attest to the current financial well-being of the entity.
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