GCR affirms rating on Santam of AAA

26 November 2012 Global Credit Ratings (GCR)

Global Credit Ratings (GCR) has affirmed the claims paying ability of Santam Limited at AAA(ZA) (triple A),, with a stable rating outlook.

Santam is the short term insurance market leader, displaying a GWP market share of approximately 22%. “The rating is supported by Santam’s formidable competitive position and is underpinned by its very strong franchise value, superior diversification and market expertise, and an extensive distribution network within South Africa”.

At an industry level, successful growth strategies have been demonstrated by players able to navigate both traditional markets and product types, while supplementing a commoditised portfolio with alternative and specialised products via effective, modern distribution channels. “Santam has multifaceted operations, enabling the insurer to compete effectively in diversified market spaces. In light of this position, Santam is viewed as well placed to attract high quality business, while retaining key portfolios, and capturing new blocks of revenue,” says GCR.

Nevertheless, dynamic forces continue to shape the competitive landscape. “The evolving competitive environment continues to impact on market share and suppress rates. This is primarily attributable to the increasing prominence of direct players and flexible companies that can adapt quickly to emerging market developments. This is exacerbated by the difficult economic conditions,” stated GCR.Capitalisation is viewed to be strong, underpinned by an internally developed, risk-based model that has become entrenched in operations and strategic decision making. This is complemented by a mature and embedded ERM framework, as well as adequate reserving levels. However, owing to the extensive scope of the business, the development of an enterprise-wide risk culture is viewed as a challenge.

Furthermore, the company’s sizeable investment portfolio reflects adequate liquidity, and is supported by a large portion of readily redeemable instruments. Investment and capital risk was further mitigated by the equity sell-off in early F12 (with proceeds thereof distributed as a special dividend).

The strength of the insurer’s long-term performance has been underpinned by robust underwriting cycle management, exhibiting a notably resilient level of performance through depressed market conditions. “Santam has achieved a high level of sustained underwriting profitability, underpinned by a well-diversified portfolio, selective underwriting policies and pronounced scale economies,” concludes GCR.

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