(Repeat for additional subscribers)
March 3 (The following statement was released by the rating agency)
Fitch Ratings has affirmed South Africa-based Home Loan Guarantee Company's (HLGC) National
Insurer Financial Strength (IFS) rating at 'AA+(zaf)' with a Stable Outlook.
KEY RATING DRIVERS
The rating reflects HLGC's unique position as an insurer being a public benefit
organisation providing guarantees to lending institutions against home loan
default by borrowers in the low-income segment in South Africa, its strong
capital position, low loss ratio and its established track record of sound and
active risk management. However, the rating is constrained by the company's
small size and its niche position.
HLGC's gross written premiums (GWP) were stable at ZAR12.1m in the six month
ended 31 December 2013 (1H14) after they had grown substantially to ZAR24.8m in
the financial year ended 30 June 2013 (FYE13) from ZAR13.5m in FYE12 benefitting
from increased business volumes taken on from First National Bank (BBB/Stable)
and ABSA Bank (A-/Stable). Fitch views also positively that HLGC was able to
report a strong and improved surplus of ZAR14.3m for 1H14 (1H13: ZAR5.6m, FYE13:
ZAR8.1m) benefiting from stronger investment income and an improved underwriting
result. HLGC's expense base continues to be relatively high although expenses
continued to decrease in 2013 in absolute terms as well as in relation to
Fitch continues to view HLGC's capitalisation as strong based on its own
risk-based capital assessment and expects capitalisation to remain commensurate
with the rating level. However, net assets to net premiums continued to decline
to 3x (FYE12: 5x, FYE11: 9x, FYE10: 43x) driven by the substantial growth in GWP
in recent years.
HLGC increased its equity exposure to around 56% of invested assets at FYE13
(FYE12: 48%). Fitch views HLGC's equity exposure as high but commensurate with
the rating given the company's strong capitalisation.
Fitch views an upgrade of HLGC's rating as unlikely in the short to mid-term
given HLGC's small size, its relatively high investment risk.
A downgrade could be triggered by a significant further weakening of HLGC's
capitalisation due to further premium growth or increased asset risk, to the
extent that capital is no longer commensurate with the current rating.