Johannesburg, 14 Oct 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Alliance Insurance Corporation Limited of A+(TZ); with the outlook accorded as Stable. The rating(s) are valid until 9/2014.
Global Credit Ratings has accorded the above credit rating(s) on Alliance Insurance Corporation Limited based on the following key criteria:
Established as a composite insurer in 1999, Alliance Insurance Corporation Limited (“Alliance”) now operates as a pure short term insurer following the separation of its life and non-life operations in July 2010. The company is 65% owned by Union Trust Investments Limited, while The Mac Group holds the remaining stake (following the purchase of the respective stake from The Heritage Insurance Company Tanzania Limited in 2012 for TShs8.1bn).
The rating recognises Alliance’s established position as a leading player in the Tanzania insurance market (9% market share), and its renewed operational focus on non-life business only. Further, underpinned by a sound degree of capital accumulation (CAGR of 20% since F08) and a sustained cautious approach to risk retention, international solvency has consistently trended upwards over the review period, registering above 100% over the past two years, with a similar comfortable level forecast for F13. In addition, the size of the insurer’s investment portfolio and the relatively balanced investment stance are supportive of sound key liquidity metrics. However, some degree of investment risk arises from the elevated prominence of listed equities relative to capital (41% in F12), and the heightened level of banking counterparty concentration in terms of cash reserves. Note is taken of a sizeable, unsecured intercompany exposure of TShs2.8bn, representing 9% of total assets and 20% of shareholders’ interest at FYE12. Supported by the unwinding of sizeable claims provisions, underwriting profitability was restored in F12, with the insurer posting an underwriting profit in 4 of the last 5 years. This notwithstanding, the F12 margin was very thin, with further claims control rigor required going forward to sustain profitability at comfortable margins. The treaty reinsurance programme is mainly led by secure rated counterparts, whilst net deductibles per risk and event remain well contained relative to FYE12 capital (at 0.4%). However, iincreased operational risk stems from a high net concentration of the risk base to motor (68% of NPE in F12), and the strong reliance on a single intermediary in terms of business procurement.
An upward adjustment of the rating remains subject to an enhanced level of profitable underwriting margin stability, coupled with improved diversification of the risk premium spread, whilst international solvency is expected to be maintained around current levels. Conversely, a sharp or protracted weakening of the insurer’s underwriting performance and/or an overly aggressive risk appetite (resulting in a notable softening of key solvency metrics) would be negatively viewed. Further, a significant deterioration in key liquidity measures and/or an increase in the size/duration of the intercompany loan could exert downward rating pressure.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Dec/2006)
Claims paying ability: A+(TZ)
Last rating (Sep/2012)
Claims paying ability: A+(TZ)
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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.
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/s has been disclosed to Alliance Insurance Corporation Limited with no contestation of the rating.
The information received from Alliance Insurance Corporation Limited and other reliable third parties to accord the credit rating included 2012 audited annual financial statements (plus four years of comparative numbers), full year 2013 detailed budgeted financial statements, unaudited year to date management accounts to 30 June 2013, 2013 reinsurance cover notes, statutory returns for 2011 and 2012, as well as other non-public statistical information.