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GCR affirms Chubb Insurance South Africa Limited’s rating at AA(ZA); Outlook Stable.

28 June 2017 Gary Jack, Chubb
Gary Jack, Country President for Chubb Insurance South Africa Limited

Gary Jack, Country President for Chubb Insurance South Africa Limited

Chubb today announced that Global Crediting Rating (GCR) has affirmed the national scale claims paying ability rating assigned to Chubb Insurance South Africa Limited at AA(ZA), with the outlook accorded as Stable.

Gary Jack, Country President for Chubb Insurance South Africa Limited said:

‘I am pleased with Global Credit Rating’s decision to retain Chubb South Africa’s national claims paying ability rating at AA with a stable outlook, despite challenges in the economic and market environment. This is a measure of security and confidence to our customers and business partners. The rating recognises the execution of core strategies and our disciplined approach to underwriting. It also reflects the benefits of being part of a group with deep underwriting expertise and balance sheet strength.’


 

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Chubb Insurance South Africa Limited (“Chubb SA”) based on the following key criteria:

Chubb SA reflects very strong risk adjusted capitalisation, supported by a low quantum of insurance risk and limited market exposure. In this respect, the interim statutory capital adequacy requirement (“CAR”) coverage equated to a very high 4x at FY16 (FY15: 3.8x). The insurer’s minimum solvency capital requirement (“SCR”) cover under expected Solvency Assessment and Management (“SAM”) parameters is projected to be in excess of 1.25x. As such, GCR expects the insurer to remain sufficiently capitalised under expected SAM parameters, supported by the capital management strategy in place.

Key liquidity measures registered within very strong ranges, albeit evidenced a downward trajectory, with cash covering net technical liabilities by 1.9x (FY15: 2.2x; FY14: 2.5x), while the claims cash cover ratio was 55 months (FY15: 45 months). Increases in technical reserve was the primary driver of the lower cash coverage. In GCR’s view, liquidity metrics are likely to remain within very strong ranges, supported by sound operating cash flow generation and conservative asset allocation (which also mitigates capital risk in the event of market volatility).

The insurer’s earnings capacity is viewed to be very strong, supported by strict underwriting disciplines that leverage off group global capabilities and expertise, which GCR views to have been applied well within the local market. In this respect, the five year aggregated gross underwriting margin equated to 24% (FY16: 36%; FY15: 35%). GCR positively views the insurer’s strength in active portfolio management, having demonstrated the capacity to enhance earnings in core lines, while actively remedying and shedding non-performing portfolios. As such, the insurer’s demonstrated track record of underwriting profitability is indicative of earnings capacity going forward.

The business profile is sound, supported by enhanced levels of earnings traction in key target lines. In this respect, solid progress has been made in diversifying the earnings stream into strategic niche products, in which the insurer is viewed to benefit materially from technical infrastructure and input available from the Chubb group (the collective consisting of Chubb Limited and its core operating companies, referred to hereon as the “group”). As a result, GCR views Chubb SA as very well positioned to sustain excellent medium term earnings capacity in line with strategic targets. Diversification efforts are expected to continue, with focus on increasing risk base contribution of financial lines, liability and accident & health.

Chubb SA receives reinsurance support from the group, with the majority of cessions placed with the group (96% of cessions in FY16). The main group entity displays a strong international rating. In GCR’s view, the level of reinsurance support provides the insurer with significant capacity relative to the size of its balance sheet, while demonstrating a strong level of integration of the insurer into the group’s international structure. Additionally, Chubb SA has a letter of credit to meet reinsurance obligations.

The rating derives upliftment from implicit group support. Furthermore, the implied financial support provided by Chubb INA Holdings Inc. (“CIH”), by way of a letter of comfort, and demonstrated capital support by Chubb INA Holdings Limited (“CIIH”), are viewed positively.

Improvements in the insurer’s business profile and strategic support continue to reflect the largest potential for upward rating movement. Conversely, the rating may be downgraded if Chubb SA registers a substantial reduction in capitalisation and/or liquidity metrics. Furthermore, if the letter of credit provided is withdrawn and/or amended, or if the strategic importance of the insurer to the group weakens, a negative rating action may result.

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