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Fitch Affirms RMB Structured Insurance at 'BBB'/'A+(zaf)'
December 17, 2014 / 4:07 PM / 3 years ago

Fitch Affirms RMB Structured Insurance at 'BBB'/'A+(zaf)'

(The following statement was released by the rating agency) JOHANNESBURG/LONDON, December 17 (Fitch) Fitch Ratings has affirmed South Africa-based RMB Structured Insurance Limited's (RMBSI) Insurer Financial Strength (IFS) rating at 'BBB' and Ireland-based RMB Financial Services Limited's (RMBFS) and Mauritius-based RMB Structured Insurance Limited PCC's (RMBSI PCC) IFS ratings at 'BBB'. The Outlooks are Negative. Fitch has also affirmed RMBSI's National IFS rating at 'A+(zaf)'. The Outlook is Stable. KEY RATING DRIVERS The ratings reflect the companies' good financial performance, their strong capital positions, and the prudent investment policy. The ratings also reflect RMBSI's conservative use of reinsurance in its underwriting management agencies (UMA) insurance business. Offsetting these positive rating drivers is the RMBSI group's small size (particularly in relation to other insurers in the market) and concentration risk, stemming from its focus on the South African market and a limited number of clients. As underwriting authority is delegated to UMAs, there could be a potential mis-alignment of interests between the UMA and RMBSI. However, Fitch believes RMBSI manages and controls this potential risk well, by careful selection of UMAs and by requiring them to agree to various conditions relating to their operation and performance. RMBSI PCC's and RMBFS's ratings reflect the companies' strong links to the RMBSI group. Fitch views RMBSI PCC and RMBFS as "Core" to the RMBSI group, as defined in the agency's insurance rating methodology, and has therefore aligned their IFS ratings with RMBSI. The Negative Outlook on the international scale ratings reflects RMBSI's exposure to the deteriorating operating environment in South Africa, which is also reflected in the Negative Outlook on South Africa's sovereign ratings (see "Fitch Affirms South Africa at 'BBB'; Negative Outlook", dated 12 December 2014, at www.fitchratings.com). The operating environment is characterised by slow economic growth and pressure on consumers' disposable incomes. Fitch expects these factors to affect the demand for insurance. The Outlook on RMBSI's National IFS rating remains Stable because this rating reflects the company's creditworthiness relative to other domestic insurers, all of which face similar difficulties from the worsening operating environment. The RMBSI group delivered strong results in FY14, with a net profit of ZAR101m (FY13: ZAR89.3m). Fitch views as positive for the rating the continued upward trend in the group's fee and underwriting income to ZAR76m in FY14 (FY13: ZAR63m, FY12: ZAR39m, FY11: ZAR35m). The 20.1% increase in FY14 was driven by a strong increase in fee income from the underwriting management agency (UMA) business. In FY14, total GWP increased by 82% to ZAR1,157m. The main contributor to total GWP was the UMA business, which increased by 143% to ZAR847m, which follows a similar increase in FY13. These consecutive increases have helped RMBSI to re-establish its presence in the UMA market and improve the diversification of its fee and underwriting income. The RMBSI group's Prism factor-based model (Prism FBM) score was 'Extremely Strong' as at the end of the financial year ending on 30 June 2014 (FYE14). This, together with strong reported regulatory solvency ratios, supports Fitch's view that the RMBSI group has a strong capital position. RATING SENSITIVITIES Continued weakness in the South African economic outlook or a downgrade of the sovereign ratings would trigger a downgrade in the group's international scale ratings. A downgrade of both the national and international scale ratings could result from evidence of the group's business model being unsustainable, reflected by a sharp decline in revenue or earnings. A substantial, sustained deterioration in the regulatory solvency ratio could also lead to a downgrade as could a sustained fall by RMBSI in Fitch's Prism FBM capital assessment to "Strong" or weaker. RMBSI group's South African national scale ratings could be upgraded if there is sustained profitable growth that improves the overall scale of the company, provided the strong capital position is maintained. Given the strong links between RMBFS, RMBSI PCC and the wider RMBSI group, any movements in the ratings of RMBFS and RMBSI PCC are likely to be closely related to changes in the credit profile of the group as a whole. Contact: Primary Analyst Willem Loots Director +27 11 290 9402 Fitch Southern Africa (Pty) Ltd 23 Impala Road Sandton 2196 Secondary Analyst Anna Bender Associate Director +44 20 3530 1671 Committee Chairperson Federico Faccio Senior Director +44 20 3530 1394 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. (a) No part of the rating was influenced by any other business activities of the credit rating agency; (b) The rating was based solely on the merits of the rated entity, security or financial instrument being rated; (c) Such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument. Applicable criteria, 'Insurance Rating Methodology', dated 4 September 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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