The national scale ZAR currency claims paying ability rating accorded to The Hollard Insurance Company Limited (“Hollard”) has been affirmed at AA (double A), with the rating taken off Rating Watch.
The rating is underpinned by Hollard’s position within the top tier of the South African insurance market, complemented by its strong and stable management team. Hollard, the third largest participant in the short term insurance market, utilises a business model that centres on specialist and alternative distribution channels (supported by conventional intermediaries), focusing primarily on niche sub-segments within established lines. This approach has afforded the insurer with premium growth in excess of the peer group average, with Hollard’s compound annual growth rate over the past three years (10%) noticeably exceeding that of the peer group (3%) and industry (8%). This notwithstanding, the more segmented nature of the various underwriting units gives rise to a greater degree of operational risk. Note is taken, however, of the insurer’s emphasis on improving risk management and associated Pillar II practices going forward.
The international solvency margin has trended upwards and is in line with GCR’s measure for the current rating. Capital adequacy is supported by low exposure to long tail risk types and prudent risk retention levels. Furthermore, Hollard displays a sizeable investment portfolio, supported by sound liquidity and contained exposure to capital market volatility. This notwithstanding, investments are heavily weighted towards privately held, insurance related assets. While the strategic value of these investments is recognised, they do imply a high degree of industry concentration risk.
Hollard’s increased presence through the product development and supply chain (via shareholdings in various underwriting managers and intermediaries) facilitates a higher degree of pricing control. This has impacted positively on Hollard’s earned loss ratio, which has registered at levels below that of the peer group over the review period. This has been partially offset, however, by the insurer’s elevated delivery cost base (a function of the divisional compensation structure), which has reduced financial flexibility in higher claiming periods during the underwriting cycle.
Increasing competition in the specialist lines segment is likely to constrain growth in Hollard’s traditional target market. However, note is taken of the company’s innovative approach to new business, which has opened up several growth opportunities in other profitable niche markets. In this regard, GWP growth is expected to remain relatively stable at 12% in F12, with the new corporate-broker division (Hollard Corporate Markets) expected to drive demand for a wider offering of industrial cover products.
Marc Chadwick https://globalratings.net/uploads/files/Insights_Jan_2012.pdf
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