GCR affirms Santam's credit rating - credit profile remains robust

AUGUST 11, 2016

Global Credit Ratings (GCR) has affirmed the national scale claims paying ability rating assigned to Santam Limited (Santam) of AAA(ZA) with the outlook accorded as Stable. GCR has also affirmed the national scale subordinated debt rating accorded to Santam Limited of AA-(ZA), with the outlook accorded as Stable. Furthermore, GCR has affirmed the international scale claims paying ability rating assigned to Santam Limited of BBB, with the outlook accorded as Stable.

Marc Chadwick, Head of Insurance Ratings at GCR says Santam’s competitive positioning is considered to be a material rating strength. The company is the market leader in the short-term insurance industry, with a 19% share of gross written premiums. GCR considers Santam to be well positioned to sustain its competitive strength, on the back of its high levels of capacity and technical expertise, entrenched intermediary relationships and strong franchise value. In GCR’s view, the strong representation in both the specialised and commoditised market segments enables the insurer to attract and retain high quality business.

The insurer’s underwriting margin has averaged 5% over the review period. Santam targets an underwriting margin of between 4% and 8%, with profitability expected to be sustained on the back of strong underwriting discipline and a high level of scale efficiencies, as well as sizeable realised investment flows. The insurer has maintained a sound level of risk adjusted capital adequacy, which is a key input into the rating.

Based on the Comprehensive Parallel Run at financial year end 2015, Santam’s Solvency Capital Requirement (SCR) cover stood at a strong level, after accounting for the R801 million share buy-back.  Santam’s sizeable investment portfolio reflects adequate liquidity, which is supported by a large portion of readily redeemable instruments. Capital exposure to market risk is mitigated through the use of hedging instruments that limit downside losses.

Debt issue funds are ring-fenced in a separate portfolio and invested in cash and fixed interest bearing investments, with a minimum benchmark return equivalent to Santam’s bond performance.