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GCR affirms Compass Insurance Company Limited’s rating of A+(ZA); Outlook Stable

06 August 2015 GCR

Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Compass Insurance Company Limited of A+(ZA), with the outlook accorded as Stable.

Summary rating rationale

Global Credit Ratings (“GCR”) has accorded the above credit rating to Compass Insurance Company Limited (“Compass”) based on the following key criteria:

Compass is a wholly owned subsidiary of Hannover Reinsurance Africa Limited (“Hannover Re Africa”), which is rated AAA(ZA) by GCR. Hannover Re Africa is 100% owned by Hannover Reinsurance Group Africa (Pty) Ltd, and the ultimate 100% holding company is Hannover Rück SE (“Hannover Rück”), which carries an international financial strength rating of AA-. GCR considers Compass to be strategically important to Hannover Re Africa, which is a key supporting factor to the insurer’s current rating.

Compass displays very strong liquidity levels and a low risk balance sheet, which is expected to continue to support the insurer’s standalone credit quality going forward. Risk adjusted capitalisation is expected to be maintained at adequate levels, while capital adequacy is further supported by the strong reinsurance counterparties and moderate risk and event retention levels.

Compass has registered a high degree of underwriting volatility over the review period, although note is taken of the turnaround in profitability for continuing lines of business, signalling a potential strengthening in earnings capacity and stability going forward.

The underwriting management agency (“UMA”) based business model is viewed to be exposed to a higher level of inherent risk, due to the outsourcing of certain key functions. Note is, however, taken of the investment in enhanced operational platforms, which allow for more efficient exchange of information and data, while simultaneously strengthening risk management and analytical capabilities.

Positive rating movement could follow a strengthening in earnings capacity, underpinned by sustained gross and net underwriting profitability in the continuing UMA portfolios. This is premised on maintenance of currently strong levels of balance sheet strength. In contrast, a severe and prolonged weakening in risk adjusted capitalisation and/or liquidity levels, or a reassessment of the insurer’s strategic importance to Hannover Re Group Africa, could prompt a negative rating adjustment.

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