Fitch Affirms Chartis South Africa at IFS 'AAA(zaf)', off Watch Negative
Fitch Ratings-London/Johannesburg-13 July 2010: Fitch Ratings has affirmed Chartis Life South Africa Limited's (Chartis Life SA) and Chartis South Africa Limited's (Chartis SA) National Insurer Financial Strength (IFS) ratings at 'AAA(zaf)' and removed them from Rating Watch Negative (RWN). A Stable Outlook has been assigned.
These rating actions follow Fitch's affirmation of the ratings of the holding company Chartis Overseas, Limited (Chartis Overseas; IFS rating 'A+'/Stable) and the ultimate parent American International Group Inc (AIG, 'BBB'/Stable) on 9 July 2010. Both of these companies have also been removed from RWN (see "Fitch Affirms AIG's Ratings; Removes Domestic Property/Casualty Subsidiaries from Watch Negative", on www.fitchratings.com). The ratings on Chartis Life SA and Chartis SA reflect strong formal support agreements provided by Chartis Overseas, a wholly-owned property/casualty subsidiary of AIG.
Both Chartis Life SA and Chartis SA have strong business positions in their chosen market segments, conservative investment portfolios with high levels of liquidity and remain well capitalised despite some deterioration in the levels in the financial year ended 30 November 2009 (FYE09). Chartis Life SA's published regulatory capital adequacy requirement (CAR) cover reduced to 6.3x at FYE09 (FYE08: 10.3x), mainly as a result of revisions in the regulatory CAR calculations which now take into account credit and operational risks. Due to Chartis Life SA having a 30 November year-end, its FYE08 statutory CAR cover was not subject to the revised CAR formulae which came into effect on 31 December 2008. The decline in Chartis SA's solvency ratio to 47% (FYE08: 50%) was attributable to a higher regulatory capital requirement in FYE09.
Chartis Life SA's performance was relatively resilient, with a 46% increase in its net profit to ZAR203.8m, which was mainly attributable to a reduction in underwriting expenses. Despite this, the company was adversely affected by increased lapses and cancellation of policies stemming from a weaker economy, reflecting an industry-wide trend, resulting in a 3% reduction in gross premiums written (GPW) to ZAR743m at FYE09. Chartis SA's profitability deteriorated to ZAR19.7m in FYE09 (FYE08: ZAR30.9m) as a result of an increase in operating expenses stemming from higher staff costs (increased headcount) and incurring realised and unrealised losses on foreign exchange compared to gains in the previous year. Nevertheless, Chartis SA continued to show good premium growth with GPW increasing 18% to ZAR1,801m in FY09, driven by strong growth in the property class. Both Chartis Life SA and Chartis SA had good combined ratios of 73.0% and 92.5% respectively in FY09.
Chartis Life SA and Chartis SA are both incorporated in South Africa. Chartis Life SA is a life insurance company underwriting accident and health contracts in the South African market and focuses solely on retail business. Chartis SA conducts all classes of non-life insurance business in the South African market. It focuses predominantly on large commercial business where it is one of the leading non-life insurers in South Africa.
Applicable criteria, 'Insurance Rating Methodology', dated 29 December 2009; 'Life Insurance Rating Methodology (Global)' dated 24 March 2010, 'Non-Life Insurance Rating Methodology (Global)' dated 24 March 2010, 'Fitch's Approach to Rating Insurance Groups', dated 24 March 2010, and 'National Ratings - Methodology Update' dated 18 December 2006, are available at www.fitchratings.com.
Contacts: Nicole Gibb, Johannesburg, Tel: +27 11 380 0909 begin_of_the_skype_highlighting +27 11 380 0909 end_of_the_skype_highlighting; Harish Gohil, London, Tel: +44 20 7682 7264 begin_of_the_skype_highlighting +44 20 7682 7264 end_of_the_skype_highlighting.
Media Relations: Hannah Warrington, London, Tel: +44 (0) 207 417 6298 begin_of_the_skype_highlighting +44 (0) 207 417 6298 end_of_the_skype_highlighting, Email: hannah.warrington@fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Related Research:
Insurance Rating Methodology
Life Insurance Rating Methodology
Non-Life Insurance Rating Methodology
Fitch’s Approach to Rating Insurance Groups
National Ratings - Methodology Update
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