Guardrisk Insurance Company Limited retains AA rating

GCR has maintained the domestic claims paying ability rating of Guardrisk Insurance Company Limited (Guardrisk) at AA(ZA) (double A).

According to GCR, the rating considers Guardrisk’s market leading position within the cell captive and alternative risk transfer segment, which is complimented by management’s high level of technical expertise.

“The rating is further supported by the demonstrated profit track record, underpinned by stable fee and investment income derived from the growth in assets under management and the cell portfolio.” GCR also notes that while the increased risk participation is expected to lift the exposure to underwriting volatility, cognisance is taken of the risk diversification benefits afforded by this strategy.

“The insurer has committed to maintaining capital at a level that covers the risk based capital requirement at least 1.3x, with core capital coverage (excluding holding company loans) to be maintained at a minimum of 1x.”

Furthermore, GCR favourably views the advancement of the internal capital model as a means of supporting promoter solvency. “In addition, the highly conservative investment portfolio and sound liquidity measures were favourably viewed.”

Consideration is given to Guardrisk’s exposure to credit risk stemming from the under-capitalised third party cells, albeit in the context of the wide array of the underlying risk pool, as well as the fact that the risk based capital requirements provide for the promoter to retain capital to address this.

“The ring-fenced nature of the cell ownership as per the underlying contracts, as well as the broad diversity of cells, was considered when assessing the total risk profile of the company,” explained GCR in their report.

GCR notes that the claims paying ability rating ceiling for this entity has been capped at AA_(ZA). This is due to the specific business model and limited capital flexibility, (with the insurer reliant on the capital strength of external cell shareholders in an adverse scenario), combined with the asset segregation under the cell captive structure.

In terms of downward movement factors, GCR notes that this could be caused by a change in the overall business or financial risk profile of Guardrisk, and/or a weakening in the consolidated capital strength of the individual cells.

“Specifically, negative rating action may follow should significant solvency strain materialise at the promoter level, reducing the core capital coverage (excluding holding company loans) below 1.0x,” concludes GCR.