Johannesburg, 30 Nov 2016 — Global Credit Ratings has today assigned a national scale claims paying ability rating to Tausi Assurance Company Limited of A(KE), with the outlook accorded as Stable. The rating is valid until October 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Tausi Assurance Company Limited (“Tausi”) based on the following key criteria:
Tausi reflects very strong risk adjusted capitalisation, supported by limited market risk exposures and relatively well contained insurance risks. Accordingly, the international solvency margin registered at a high 178% at FYE15 (FYE14: 168%; review period average: 151%). GCR expects capitalisation to remain within a very strong range over the rating horizon, underpinned by sound internal capital generation and well contained dividend distributions.
Liquidity metrics remained very strong over the review period. In this respect, cash cover of average monthly claims equated to 54 months, while cash cover of net technical provisions was recorded at a strong 1.6x at FYE15 ( FYE14: 40 months and 1.3x). Liquidity metrics are likely to remain within a strong range over the rating horizon, supported by healthy operating cash flow generation, and conservative asset allocation.
Earnings capacity is viewed to be robust, underpinned by strong underwriting margins and healthy investment returns. GCR expects average underwriting margins to register between 3% and 5% (compared to a five year aggregated underwriting margin of 10%), as the insurer enters competitive product fields in order to accelerate premium growth. As such, the ability of the insurer to successfully attain key strategic targets, while maintaining sound underwriting margins represents a key rating consideration.
The insurer’s business profile is intermediate, underpinned by a limited competitive position. In this respect, the insurer’s share of short term industry gross premiums equated to 0.8% in FY15. However, this is partially offset by a well-balanced earnings stream and fairly low product risk. Competitive positioning may improve over the medium term, given the increased focus on growth and diversification. In this respect, growth is expected to be supported by an expansion of the broker network, strengthening existing client relationships, while developing new products and pursuing quasi-niche lines of business.
The insurer’s reinsurance panel reflects a sound aggregated level of credit strength, with the lead being taken by ZEP-Re (PTA Reinsurance Company). Maximum net deductibles are viewed to be moderately high relative to capital.
The actuarial function is undertaken by internal resources. Furthermore, the company has an external actuary to test the adequacy of reserves, in line with IRA requirements. The appointed actuary was satisfied with the prudence and calculation methodology for the technical provisions calculated as per the Guidelines in the Insurance Liability Valuation as at FYE15.
A material improvement in the business profile (by way of increased market share and enhanced earnings diversification) may lead to positive rating movement. This would need to be supported by earnings capacity registering within or above a moderately strong range. Furthermore, a substantial strengthening in capitalisation and liquidity metrics may be viewed positively. Conversely, a downgrade could result from a persistent deterioration in the underwriting result beyond expectations (through the expansionary phase), coupled with material reduction in risk adjusted capitalisation and/or liquidity metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial/last rating (November 2016)|
|Claims paying ability: A(KE)|
|Primary Analyst||Secondary Analyst|
|Yvonne Masiku||Munyaradzi Mushure|
|Senior Credit Analyst||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
East Africa Insurance Statistics Bulletin, 2009-2015
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Tausi Assurance Company Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to Tausi Assurance Company Limited with no contestation of the rating.
The information received from Tausi Assurance Company Limited and other reliable third parties to accord the credit rating included:
- The audited financial results to 31 December 2015
- Four years of comparative audited numbers
- Budgeted financial results to December 2016
- Unaudited interim results of to 30 September 2016
- Reinsurance cover notes 2016
- Financial Condition Report for 2015
- Statutory Returns 2015, and
- Other relevant documents.
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capitalisation||The provision of capital for a company, or the conversion of income or assets into capital.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its risks.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|International Scale Rating (“ISR”)||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liquidity||The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short Term||Current; ordinarily less than one year.|
|Solvency||With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.|
|Statutory||Required by or having to do with law or statute.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|Underwriting||The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a more detailed glossary of terms/acronyms used as per GCR insurance glossary, please click here
GCR accords Tausi Assurance Company Limited an initial rating of A(KE) ; Outlook Stable.