Regent Insurance Company Limited retains AA-(ZA) rating
GCR has maintained the domestic South African Rand claim paying ability rating of Regent Insurance Company Limited (“Regent”) at AA-(ZA) (double A minus).
Regent is a 100% owned subsidiary of Imperial, which is listed on the Johannesburg Stock Exchange and had a market capitalisation of R40bn as at December 2012. The rating considers the unique product offerings and appropriate pricing of risks, with the insurer consistently registering underwriting surpluses through the cycle, which have been underpinned by certain profitable motor specialist segments. This notwithstanding, the underwriting trend is volatile.
Whilst cognisance is taken of the pronounced decline of the international solvency margin in F12, this is viewed within the context of the exposure to high frequency, low value risk types and the significant portion of motor warranty business. In this regard, the insurer reported a high CAR cover of 1.9x at FYE12 reflective of the large exposure to motor business. This notwithstanding, GCR’s internal model determines the minimum solvency of 50%, with consideration given to the lower capital charge on motor warranty. Note was also taken of the previously demonstrated capital support provided by Imperial.
In terms of asset management, the insurer’s investment portfolio remains diversified, with adequate liquidity. However, following a shift in the investment strategy, equity market exposure has increased to 59% of shareholders funds at FYE12, implying a moderate to high degree of capital risk. The investment returns have further augmented underwriting profitability over the review period.
An upward movement of the rating or outlook could develop from enhanced earning diversification, while maintaining a stable and profitable underwriting track record. This must be accompanied by risk appropriate solvency levels. In terms of downward movement factors, this could occur in the event of a material change in the nature of the relationship with the parent. Furthermore, if a further weakening in the operating performance was evidenced thereby reducing the solvency margin to below the minimum comfort level for this rating band on a sustained basis.
CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.
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