Fitch Ratings has affirmed MMI Group, Guardrisk Insurance Company and Guardrisk Life's national Insurer Financial Strength (IFS) ratings at "AA+(zaf)". The outlooks are stable.
The agency has also affirmed Mauritius-based Guardrisk International Limited Protected Cell Company's (GIL) IFS rating at "BBB+" with a negative outlook.
The negative outlook on GIL's IFS rating reflects both the Guardrisk group's and its ultimate parent MMI Holdings's (MMI) concentration in South Africa and a weakening operating environment as indicated by the negative outlook on South Africa's sovereign ratings.
Fitch has stated that it views Guardrisk's strategic status as “very important”, under its insurance group rating methodology, and has applied a one-notch uplift to its national IFS ratings compared with its standalone group assessment.
This reflects Guardrisk's strategic alignment with its parent. Guardrisk is a wholly owned subsidiary of the MMI group.
From a standalone perspective, Guardrisk's rating benefits from being the leading provider of cell captive insurance services in South Africa, its strong capitalisation and low volatility of profits.
The majority of the Guardrisk group's income is generated through management fees, charged for services provided within the cell captive structure, such as underwriting, access to insurance licences, reserving and risk management.
Only a small proportion of group profitability is generated through direct underwriting. Around 95 percent of the Guardrisk group net revenues come from South Africa, with the remainder from Mauritius and Gibraltar.
The stable outlooks on the national IFS ratings reflect Fitch's expectation that the MMI group's credit strength relative to the best credit in the country will remain stable.
Fitch has stated that the affirmation reflects MMI's “solid performance, well-established domestic franchise, strong capital position and diversified distribution network”.
Offsetting these rating drivers is the risk of earnings volatility stemming from the group's exposure to investment markets.
MMI's diluted core headline earnings improved 10 percent to £103.3 million at H1 2015, up from £92.4 million at the same point in 2014.
However, net profit declined 22.7 percent to £76.1 million in H1 2015 following weaker equity market returns relative to H1 2014.
Assets backing the group's shareholder funds are invested “conservatively”, according to Fitch, and overall it continues to view the investment risk as acceptable for the rating.
