Johannesburg, 18 October 2018 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Alliance Insurance Corporation Limited of AA-(TZ), with the outlook accorded as Stable. The rating is valid until September 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Alliance Insurance Corporation Limited (“Alliance”) based on the following key factors:
Alliance’s risk adjusted capitalisation registered within a very strong range, supported by a sizeable capital base catering for the quantum of insurance and market risk exposures. Accordingly, the international solvency margin consistently registered at high levels throughout the review period, equating to a very strong 109% at FY17 (FY16: 100%; review period average: 115%). Risk adjusted capital adequacy is likely to remain within a very strong range over the rating horizon, supported by healthy internal capital generation, together with relatively well contained dividend distributions. Furthermore, maximum net deductibles are limited to conservative levels relative to capital, while the reinsurance panel reflects a sound aggregate credit profile.
The insurer’s liquidity profile is strong, as evidenced by claims cash coverage of 28 months (FY16: 18 months), and cash coverage of net technical liabilities of 1.2x (FY16: 0.8x). Cognisance is taken, however, of the fact that majority of the financial institutions are unrated, while a couple have strong international linkages. In GCR’s view, liquidity metrics are likely to remain within a strong range over the rating horizon, supported by sound cash flow generation and balanced asset allocation.
Alliance’s earnings capacity is viewed to be healthy, buoyed by moderately strong underwriting profitability and robust investment returns. In this respect, the five year underwriting margin equated to 6% (FY17: 4%; FY16: 5%), while the investment yield registered at 14% (FY16: 13%). While management expects increased scale efficiencies (on the back of strong growth) to support improved underwriting performance (FY18: 8%), GCR expects margins to remain within a moderately strong range over the outlook horizon.
The insurer displays strong competitive position, supported by its top tier position in the domestic short term insurance market. In this respect, Alliance’s share of total short term industry gross premiums equated to 9% in FY17 (FY16: 10%). Despite the shift in competitive dynamics, following a regulatory directive to move all government business to the National Insurance Corporation (“NIC”), GCR expects the insurer to continue to defend its current competitive position over the outlook horizon, underpinned by its solid franchise value and established corporate relationships.
Earnings are heavily reliant on one line of business (motor), representing 46% of gross premiums in FY17 (FY15: 49%). Similarly, the risk base is heavily skewed towards motor, accounting for majority of net premiums in FY17. Nonetheless, this concentration is partially offset by relatively low product risk in this class. Going forward, management expects to diversify the earnings profile by expanding distribution channels.
The rating currently matches the national scale ceiling applicable to entities operating within the Tanzanian short term insurance industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. Conversely, the rating may be downgraded should the insurer evidence a reduction in risk adjusted capital adequacy, a weakening in earnings capacity and/or liquidity metrics.
NATIONAL SCALE RATINGS HISTORY
|Initial rating (December 2006)|
|Claims paying ability: A+(TZ)|
|Last rating (September 2017)|
|Claims paying ability: AA-(TZ)|
|Primary Analyst||Committee Chairperson|
|Zwivhuya Muvhenzhe||Yvonne Mujuru|
|Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784 – 1771||(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
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/RATING-SCALES-DEFINITIONS. 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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Alliance Insurance Corporation 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 Alliance Insurance Corporation Limited.
The information received from Alliance Insurance Corporation Limited and other reliable third parties to accord the credit rating included:
- The 2017 audited annual financial statements 4 years of comparative audited numbers
- Unaudited interim results to 30 June 2018
- Budgeted financial statements for 2018
- 2018 reinsurance cover notes
- Other related documents.
The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
|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, please click here
GCR affirms Alliance Insurance Corporation Limited’s rating of AA-(TZ); Outlook Stable.