Announcements

GCR affirms Heritage Insurance Company Tanzania Limited’s rating of AA-(TZ); Outlook Stable.

Johannesburg, 13 Oct 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Heritage Insurance Company Tanzania Limited of AA-(TZ); with the outlook accorded as Stable. The rating(s) are valid until 09/2015.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Heritage Insurance Company Tanzania Limited (“Heritage Tanzania”) based on the following key criteria:

Heritage Tanzania has operated since 1998, with The Heritage Insurance Company Kenya Limited (“Heritage”) holding the majority stake in the business, at 60%. Heritage is in turn a wholly-owned subsidiary of Liberty Kenya Holdings Limited, with Standard Bank Group Ltd remaining the ultimate holding company of the group. Heritage Tanzania’s rating is supported by the insurer’s very strong competitive position as the second largest insurer in the market. Going forward, GCR expects the company’s market profile to be sustained by the well-established brand, entrenched client-facing relationships and strong regional group franchise value. The company’s capital adequacy is considered very strong and represents a key rating strength. In this regard, solvency metrics have continuously registered at high levels over the review period, underpinned by contained premium risk retention levels, coupled with sound levels of retained earnings. GCR expects risk-adjusted capital adequacy to remain at sound levels over the rating horizon.

Asset quality has improved, with the level of asset risk exposure viewed as moderate. To this end, following the further repayment of intercompany balances (stemming from the disposal of the insurer’s 45% shareholding in Alliance Insurance Company Tanzania in September 2012, to one of its major shareholders), related party receivables were reported at a lower TShs3.2bn as at FYE13 (FYE12: TShs6.3bn). Overall, risky assets corresponded to approximately 55% of FYE13 capital (F12: 93%). In view of this, key liquidity metrics strengthened further in F13 and are expected to remain robust going forward, as a conservative investment strategy is anticipated to be upheld.

Heritage Tanzania’s aggregate underwriting margin measured at a very thin 1%, which together with the high level of volatility displayed in the underwriting result over the past 5 years is considered a relative rating weakness. As such, overall earnings generation has been uplifted by strong investment inflows. The insurer’s high delivery cost base presents risk to profitability over the medium term in the absence of translating its notable scale advantage into material efficiency gains. Furthermore, motor’s dominance in the risk premium spread limits diversification benefits from the remaining portfolios. This is compounded by elevated product risk, given the poor levels of profitability registered in this class over the past 5 years.

Given that Heritage Tanzania’s national scale rating currently matches GCR’s rating ceiling applicable for the Tanzanian market, an upgrade of the rating could potentially follow a strengthening of key industry factors. The rating may be downgraded if the insurer were to evidence a marked weakening in capital accumulation, thus adversely impacting on risk-adjusted capital adequacy and/or deterioration in competitive positioning. Further, a sustained weakening in liquidity levels may place downward pressure on the rating.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY

Initial rating (Jun/2007)
Claims paying ability: AA-(TZ)
Outlook: Stable

Last rating (Sep/2013)
Claims paying ability: AA-(TZ)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Sheri Few
Senior Analyst
(011) 784-1771
Few@globalratings.net

Committee Chairperson
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Insurance Companies (Updated July 2014)
The Heritage Insurance Company Tanzania Limited rating reports, 2007-2013
The Heritage Insurance Company Kenya Limited rating reports, 2000-2014

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.

Heritage Insurance Company Tanzania 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 Heritage Insurance Company Tanzania Limited with no contestation of the rating.

The information received from Heritage Insurance Company Tanzania Limited and other reliable third parties to accord the credit rating(s) included the 2013 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements for 2014, unaudited year to date management accounts to 30 June 2014, the 2014 reinsurance cover notes and other non-public statistical information on the company and/or industry.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

GCR affirms Heritage Insurance Company Tanzania Limited’s rating of AA-(TZ); Outlook Stable.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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