Fitch Ratings has upgraded
The Outlooks are Stable.
The upgrade follows a significant improvement in the group's capitalisation and leverage, helped by a capital injection by the parent company,
Hastings' standalone credit quality reflects its very strong financial performance and strong company profile, capitalisation and leverage.
Key Rating Drivers
Improved Standalone Credit Quality: Fitch assesses that Hastings' issuer default standalone credit quality has improved to 'a-' from 'bbb+' due to a significant improvement in the group's capital position, as reflected by a consolidated group Prism Factor-Based Model (FBM) score of 'Extremely Strong' at end-9M22 (end-2021: 'Adequate'), following the capital injection from Sampo. Fitch therefore assesses Hastings' capitalisation and leverage rating driver as 'Strong' under our scoring guidelines.
Reduced Financial Leverage: Hastings also redeemed
Very Important to Sampo: Further to the capital injection and evidence of stronger integration with its parent company, we now view Hastings as a strategically 'Very Important' subsidiary to Sampo. As a result, Hastings' ratings benefit from a one-notch uplift from its issuer default standalone credit quality of 'a-' for ownership by Sampo, which has a stronger credit profile than Hastings, in Fitch's view.
Very Strong Financial Performance: Fitch assesses Hastings' underwriting profitability as very strong; however, rising claims inflation, regulatory pricing reforms and the normalisation of claims frequency have led to a deteriorated reported loss ratio to 78% in 9M22 from 64% in 9M21. Hastings targets a loss ratio of below 76% over the medium term. Hastings' five-year average reported combined ratio was 90% at end-2021.
Fitch expects pressure on Hastings' underwriting performance and the increase in equity base to lead to lower returns on equity in 2022 and in 2023 (2021: 16%) although returns are likely to remain supportive of its rating.
Strong Company Profile: Fitch assesses Hastings' business profile as 'Moderate' compared with other
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A strengthening in Sampo's credit profile while the strategic importance of Hastings to Sampo improves to 'Core'
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A weakening in Hastings' strategic importance to Sampo
A substantial deterioration in Sampo's credit profile
A deterioration in Hastings' standalone credit quality, as manifested in a weakening of the Prism FBM score to 'Adequate' or a deterioration in underwriting profitability, as measured by a combined ratio consistently above 98%
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
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