Aug 14 (Reuters) - (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 (GWPs) grew 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 and ABSA Bank . Fitch views positively that HLGC also was able to report a strong and improved surplus of ZAR8.1m (FYE12: ZAR2.9m) benefitting also from stronger investment income and reductions in operating expenses. 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 premium levels.
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. More positively, Fitch believes the amount of capital in Housing for HIV (a non-profit organisation that funds counselling and treatment for borrowers affected by HIV and AIDS) in South Africa is fully fungible and could be transferred to HLGC if needed.
HLGC increased its equity exposure to around 65% of invested assets at FYE13 (FYE12: 58%). Fitch views HLGC's equity exposure as high but as commensurate with the rating level 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 and pressure on capital.
A downgrade could be triggered by a continued weakening of HLGC's capitalisation by premium growth, to the extent that capital is no longer commensurate with the rating level.