Mutual and Federal maintains highest rating

International credit rating agency Global Credit Ratings ("GCR") has reaffirmed Mutual and Federal Insurance Company Limiteds (M&F) coveted claims paying ability rating at AAA (triple A), the highest possible rating achievable.

According to Jackie Swan, senior analyst at GCR, the rating was supported by the groups position as the second largest insurer in the South African short term insurance industry, commanding an estimated 18% market share based on GPI, as well as the fact that M&F is 77% owned by Old Mutual plc (OML), the largest financial services group in South Africa. The insurers strong balance sheet, as reflected by the international solvency margin of 71% in F05 (albeit supported by the substantial gains on investments) and strong liquidity ratios, was noted.

Notwithstanding the above, the rating took cognisance of the insurers exposure to the cyclicality of the insurance industry, with the motor class being particularly susceptible to intense competitive pricing pressure. In this regard, the significant deterioration in the groups motor book, which reported an underwriting loss of R113m in F05 (F04: 132m profit), served to constrain the rating. Furthermore, given the groups large equity component of the investment portfolio, volatile equity markets have the potential to negatively impact on the insurers profitability and solvency.