Absa Insurance retains strong rating
International ratings agency Global Credit Ratings ("GCR") has reaffirmed Absa Insurance Company Limited's ("Absa Insurance") domestic ZAR currency claims paying ability rating of AA+ (double A plus), ranking it among the best credit risks in the insurance industry.
Absa Insurance's access to the infrastructure and client base of the Absa Group provides it with a significant competitive advantage in terms of its cost base. According to Susan Andrews, analyst at GCR, this is borne out by the management expense ratio of 8% for the 9 months to December F05, which remained well below the industry average of 15%. This, together with the insurer's sustained ability to manage claims levels, is highlighted by the increase in the underwriting margin for the 9 months to December F05, to a review period high, which is in contrast to industry trends. The insurer has maintained solvency levels well above the industry average throughout the review period, whilst its statutory funding ratio was 3.5x the minimum requirement at December F05. Furthermore, notwithstanding the large component of equity investments included in the investment portfolio, the insurer has maintained sizeable cash holdings in absolute terms, supporting adequate liquidity levels.
Notwithstanding the aforementioned, intensification of competition in the individual homeowners market, together with Absa Insurance's strategy to increase business derived from other price sensitive classes, could place pressure on margins going forward. Andrews added that the National Credit Act, which will require that bancassurance products are made available to bank clients via a range of insurers, is likely to increase competition and may potentially dampen Absa Insurance's margins.
