Alliance Insurance Corporation Limited’s (“Alliance”) national currency claims paying ability rating was reaffirmed at A+(TZ), with a Stable rating outlook. The rating expires in August 2013.
The rating recognises Alliance’s favourable position as one of the largest players in the Tanzanian short-term insurance market. Further, the strategic relationship held with the market leader in the industry was also noted. Despite strong growth in the book over the review period (CAGR of 16%), owing to reducing retention, the international solvency margin has generally trended upwards. Going forward, international solvency is forecast to remain at adequate levels. In addition, statutory solvency coverage was reported at a comfortable 2x in F11.
GCR further noted that the counterparties on the reinsurance programme are generally of a high quality (with secure international ratings). The industry practice of cross-placing facultative risks with unrated or lower-rated counterparties, however, remains a market risk.
Despite the adequate liquidity measures displayed, the company’s relatively high weighting towards listed equities (40% of total capital) was noted. In addition, a sizeable loan to a subsidiary company, as well as notable counterparty exposure in terms of cash placements further exacerbates capital and investment risk and is viewed critically by GCR.
Cognisance was also taken of the underwriting loss registered in F11, which follows a prolonged period of sustained profitability, and was largely attributable to unfavourable motor claims. Owing to diminishing cost efficiencies and increasing competition, underwriting margins are expected to remain constrained going forward.
Positive rating triggers would include an enhanced level of stability in underwriting profitability, against improved diversification of the risk premium spread. International solvency should also be maintained around current levels. The rating could be negatively impacted by a further sharp or protracted weakening of the insurer’s underwriting performance, thus hindering capital accumulation, and/or an overly aggressive risk appetite resulting in a notable softening of key solvency metrics. Further, a significant deterioration in key liquidity measures, and/or an increase in size/duration period of inter-company loans, would be negatively considered.
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