Global Credit Ratings (GCR) has affirmed the national scale claims paying ability rating assigned to Centriq Insurance Company Limited of AA-(ZA), with the outlook accorded as Stable.
Centriq Insurance Company Limited (Centriq) continues to hold a material share of the cell captive market, with competitive positioning supported by development of systems and processes. Furthermore, the specialised nature of the business model is relatively difficult to replicate from start up.
Risk adjusted capitalisation is expected to be maintained at sufficient levels to support the rating, and is complemented by the additional financial flexibility afforded by a draw down facility from Santam Limited. Furthermore, the successful containment of cells’ solvency shortfalls over the past three years enhances the insurer’s credit strength and is favourably viewed from a rating perspective. Centriq has maintained a low risk balance sheet, while consolidated liquidity levels are expected to remain sound, underpinned by the company’s conservative investment policy.
On a normalised statutory basis, Centriq’s average underwriting margin continues to compare favourably with typical insurers. Furthermore, GCR expects the insurer to continue to achieve robust net profitability, given the large portion of fee based earnings.
GCR took cognisance of the inherent exposure to volume volatility in the cell captive environment, given the portfolio nature of the arrangements and attrition associated with maturing books of business. Furthermore, possible regulatory changes could impact on the company’s strategic direction over the medium term.
Centriq’s rating is supported by the insurer’s strong standalone credit profile, coupled with support derived from the Santam group. GCR considers Centriq to be strategically important to the Santam group, given the parent’s strategic focus on growing market share in the specialist lines segment, as well as its material participation on the reinsurance programme. This is reinforced by the risk management oversight provided by the shareholder, with group enterprise risk management policies having been incorporated into the company’s management and reporting functions.
A rating upgrade could be supported by a strengthening in competitive positioning (supported by growth into profitable business lines over the medium term) and enhanced risk adjusted capitalisation. In contrast, a sustained weakening in operating performance that leads to erosion of promoter solvency, with a simultaneous reduction in shareholder capital support, could result in negative rating action. This could also be triggered by a weakening in asset quality or liquidity levels.
Published in Cover magazine edition July 2016 “Insurance Ratings at GCR”