Rand weakness not a threat to SA insurers’ ratings, says Fitch

BDLive

FITCH Ratings has come out in support of the ratings of South African insurance companies, saying their ratings would not be affected by recent rand weakness.

Insurers’ domestic capital positions remained strong and largely immune to short-term currency movements, the rating agency said in a statement on Monday.

It added that while the insurers’ predominant rand liabilities were matched by rand-denominated assets, local capital markets continued to provide them with ample liquid investments, as well as reliable capital supply through well-developed local debt and equity markets.

SA’s financial markets are considered among the best in the world.

"The domestic stock market’s significant offshore exposure provides insurers with a partial rand hedge, supporting equity returns during times when the rand depreciates," Fitch said.

The rand has weakened significantly against major currencies, with year-to-date losses of about 19% against the dollar and 17% against the pound.

Fitch said that rand weakness particularly hurt non-life insurers’ profitability because of the increased cost of imported spare parts for motor repairs. A greater use of alternative spare parts rather than original manufacturer parts had helped non-life insurance companies manage rand weakness, Fitch said.

"However, new vehicle prices may rise as a result of the weak rand. This may have a second-order effect on motor insurance sales growth," the rating agency warned.

The rand firming against some emerging market currencies, including many in sub-Saharan Africa, supported insurers’ expansion plans into the region, while their ability to expand into developed markets would likely be hurt by a sustained weak rand.