London, 27 May 2016 -- Moody's Investors Service, ("Moody's") has
assigned Aaa.za national scale insurance financial strength (IFS)
ratings to both Guardrisk Insurance Company Limited (Guardrisk Insurance)
and Guardrisk Life Limited (Guardrisk Life). At the same time,
Moody's also assigned a Baa2 global scale IFS rating to Guardrisk
International Limited PCC, incorporated in Mauritius (Guardrisk
International).
In the same action, Moody's assigned the following global
scale IFS ratings, which serve as the basis for the national scale
ratings: Guardrisk Insurance at Baa2 and Guardrisk Life at Baa2.
The outlook is negative, on a global scale basis, and follows
from the negative outlook for the Government of South Africa (Baa2,
negative)
Moody's considers Guardrisk's various entities (Guardrisk
Insurance, Guardrisk Life and Guardrisk International) as a single
analytic unit, and, as such rates them at the same level.
In fact Moody's considers Guardrisk's entities to be closely
related, the South African entities benefiting from a common operating
platform and management structure. In addition, the three
rated entities form part of Guardrisk's overall platform and integrated
service offering to clients, allowing it to offer a variety of risk
transfer solutions to clients.
RATINGS RATIONALE
The ratings of the Guardrisk reflect (i) its good market position as the
largest cell captive insurer in the South African market, (ii) low
underwriting risk due to its fee based model, (iii) diverse product
mix across life insurance and short-tailed non-life insurance
lines, and (iv) strong and consistent profitability. These
strengths are partially offset by (i) its investment portfolio's
concentrated exposure to the South African economy and banking system,
which is somewhat correlated with the credit risk of cell owners,
and (ii) the uncertainty around the level of its capital coverage under
the upcoming SAM regulations, including meaningfully lower future
capital coverage levels expected for Guardrisk Insurance if the company's
internal model is not approved by regulators in the long term.
Given its exposure to the South African market, the IFS rating is
constrained by South Africa's Baa2, negative outlook,
government debt rating.
Guardrisk is the largest provider of cell captive insurance in South Africa
and manages cells that insure both life and non-life risks in South
Africa and internationally, predominately in other African countries.
Based on premiums written -- both at the cell and promoter levels
-- Guardrisk is amongst the top five largest non-life insurers
in South Africa. Guardrisk is a subsidiary of MMI Holdings Limited,
a leading insurance group in South Africa. MMI purchased Guardrisk
from the Alexander Forbes Group in 2014.
As a cell captive insurer, Guardrisk's primary risk is the
credit risk of the third party cell owners. Cell owners are responsible
for maintaining adequate solvency of the respective cells; however,
in the event cell owners are not able to recapitalize following adverse
underwriting performance, Guardrisk retains the ultimate responsibility
to policyholders. In addition to managing captive cells,
for which it earns fee income, Guardrisk retains a moderate portion
of insurance risk through direct business, and premiums generated
by selected cells for its own account.
Guardrisk's primary sources of revenue are the fees it earns for
managing the cells and invested assets belonging to cell owners.
Similarly, its expenses are substantially related to operational
expenses, and it is not exposed to significant underwriting gains
and losses. This fee based model decreases volatility in earnings,
and reduces the level of underwriting risk Guardrisk is exposed to.
However, because of the white-label nature of Guardrisk's
business model, with its lack of consumer interaction and meaningful
underwriting risk, Guardrisk's business might be less sticky
in the face of increased competition in the cell captive market.
The group is well capitalized relative to current regulatory capital requirements,
with Guardrisk Insurance at 1.67x the solvency capital requirements
(SCR) and Guardrisk Life at 2.6x the capital adequacy requirement
(CAR) at year-end 2015. Under the upcoming SAM requirements,
Guardrisk's regulatory capital coverage levels are expected to be
adversely impacted, primarily due to the ring-fencing of
individual cells capital requirements, and not allowing for meaningful
diversification benefit in determination of the aggregate capital requirement.
Guardrisk Life plans to implement the standard formula approach,
while Guardrisk Insurance has applied for regulatory approval of its internal
model, which it believes reflects a more economic view of the cell
captive business.
The Guardrisk ratings are constrained by South Africa's Baa2,
government debt rating. In fact Moody's views Guardrisk's
credit profile as having a meaningful link to the South African sovereign
(Government of South Africa, Baa2 negative) and banking system.
The primary reasons for this link include, the significant majority
of the group's invested assets being held in domestic securities,
including deposits with domestic banks, and sensitivity of the group's
operating performance to the South African economy and financial markets.
While Guardrisk International is based in Mauritius (Government of Mauritius,
Baa1 stable), Moody's considers its credit profile to be linked
to the broader Guardrisk group, and its parent, Guardrisk
Insurance, that is based in South Africa.
RATINGS OUTLOOK
The negative outlook on Guardrisk reflects the negative outlook on South
Africa's Baa2 government bond rating.
WHAT COULD CHANGE THE RATING UP OR DOWN
Moody's stated that the following factors could lead to an upgrade of
the Guardrisk ratings on the global scale: (1) an upgrade of South
Africa's sovereign rating, (2) explicit support from a higher
rated entity within the MMI group, and (3) diversification of Guardrisks's
geographic footprint, related to its invested assets and policyholder
base, that meaningfully reduces is exposure to South Africa,
or other highly correlated regions. Conversely, Moody's
noted that the following factors could lead to a downgrade of the group's
ratings on the global scale: (1) a downgrade of South Africa's
government debt rating and/or a downgrade of the South African banking
sector, and (2) failure to attain regulatory compliance, including
a transitional dispensation, under the upcoming SAM regulations.
OTHER
Guardrisk Insurance is the largest non-life insurer in the Guardrisk
group, with net written premium of ZAR 7.3 billion in 2015
(15 months ended June 2015), primarily focused on providing cell
captive insurance for the South African market. It writes a wide
range of corporate, personal and commercial lines that are mostly
short-tailed.
Guardrisk Life is a life insurer primarily focused on providing cell captive
insurance for the South African market. It offers a diverse range
of long-term insurance lines including funeral benefits,
health, employee benefits, and net written premiums of approximately
ZAR 2.3 billion in 2015 (15 months ended June 2015).
Guardrisk International is domiciled in Mauritius and is licensed to write
both short-term and long-term insurance, although
its business is predominately short-term focused. It offers
a diverse set of products to Guardrisk's clients with operations
outside of South Africa, predominately in Africa.
LIST OF NEW RATINGS
The following insurance financial strength ratings were assigned on the
global scale:
Guardrisk Insurance Company Limited at Baa2
Guardrisk Life Limited at Baa2
Guardrisk International Limited PCC at Baa2
A negative outlook was assigned
The following insurance financial strength ratings were assigned on the
national scale:
Guardrisk Insurance Company Limited at Aaa.za
Guardrisk Life Limited at Aaa.za
PRINCIPAL METHODOLOGIES
The principal methodology used in rating Guardrisk Insurance Company Limited
and Guardrisk International Limited PCC was Global Property and Casualty
Insurers published in April 2016. The principal methodology used
in rating Guardrisk Life Limited was Global Life Insurers published in
April 2016. Please see the Ratings Methodologies page on www.moodys.com
for a copy of these methodologies.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_189530.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Brandan Holmes
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns an Aaa.za national scale IFS rating to Guardrisk Insurance Group
