GCR affirms AA+ rating on Mutual & Federal

1/30/2012 12:40:01 PM

Global Credit Ratings (GCR) has affirmed its AA+ (double A plus) rating on the claims paying ability of the country's second-biggest short-term insurer, Mutual & Federal Insurance Company Limited (M&F).

According to GCR, while M&F has lost market share, the rating took cognisance of its continued position as the second largest short term insurer in the South African market, with an estimated 10% share of Gross Written Premiums (GWP). In this regard, the insurer's strong brand and substantial underwriting capacity as well and expansive distribution network remain a key supporting factor to the rating.

Further, GCR says that while there has been a considerable amount of underwriting volatility over the period, remedial measures put in place by M&F have resulted in a consistently improved underwriting performance since F09.

"There has been a shift in M&F's revenue concentration, with the commercial segment accounting for a greater proportion of revenue, relative to the personal and corporate segments. The move to clean up underperforming areas of the book has led to the shedding of certain personal and corporate lines."

GCR says M&F's investment portfolio remains geared towards cash and equivalents, supporting liquidity metrics. "Notwithstanding the increased equity exposure in F10, post financial year end this has reduced to below 20% of shareholders' funds. Furthermore, over the medium term, management plans to disinvest from equities entirely."

"Looking forward, a key risk factor remains the high level of competition in the insurance industry, which is likely to persist in the near term, while recent new entrants could also introduce a greater degree of pricing pressure."