Johannesburg, 11 Oct 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to ICEA LION General Insurance Company (Tanzania) 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 ICEA LION General Insurance Company (Tanzania) Limited based on the following key criteria:
Incorporated in 1998, ICEA LION General Insurance Company (Tanzania) Limited (“ICEA LION”) emanated in its current guise from the formation of the ICEA LION Group in January 2012. The company is a 53% owned subsidiary of ICEA LION General Insurance Company Limited, a leading player in the Kenyan insurance market. The remaining stake is held by Tanzania Development Finance Co. Ltd (20%) and a number of other institutional investors.
The rating took cognisance of the continued high prominence of fronted risks, thus hampering scale efficiencies. This has resulted in a protracted negative premium trend (with a cumulative TShs1.3bn in net premiums shed over the review period). In turn, this significantly undermines cost absorption, with consecutive underwriting deficits posted over the past 4 years. In addition, the continued reliance on fronted risks constrains meaningful underwriting capacity and results in an elevated degree of profit leakage to the reinsurance market. Increased operational risk stems from an elevated net concentration of the risk base to motor (56% of NPE in F12), and a high reliance on a single intermediary in terms of business procurement. The above risks are mitigated by sizeable and predictable investment returns, emanating from a sizeable investment base (32% of NWP in F12), with the bulk of associated assets held in cash instruments. This translates to continued sound liquidity metrics, which are projected to be sustained at adequate levels over the medium term. Further, the international solvency margin strengthened to a review period high of 124% in F12, thus notably surpassing budget of 64%, which partly serves as a basis for the revision of the rating outlook from “Negative” to “Stable”. Going forward, solvency is projected to be maintained at comfortable levels (114% for F13). Whilst the quality of the treaty reinsurance counterparts is considered sound, net deductibles per risk on XoL remain moderately elevated relative to FYE12 capital (at 1.3%) when compared to peers.
Upward movement on the rating or outlook could develop on the back of a demonstrated turnaround in underwriting profitability over a prolonged period, while gradually increasing risk retention, thus growing its market share on a net premium basis. In view of the operating track record displayed, downward rating pressure could emanate from the adoption of a more aggressive investment stance, thus unduly compromising liquidity measures and potentially impeding relatively predictable investment returns. Further, a fundamental change in the risk retention strategy over the short term, thus unduly exposing capital at risk could result in further rating action.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Aug/2006)|
|Claims paying ability: A(TZ)|
|Last rating (Aug/2012)|
|Claims paying ability: A(TZ)|
|Primary Analyst||Secondary Analyst|
|Benjamin Schmidt||Damien Dube|
|+27 11 784 1771||+27 11 784 1771|
|Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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.
ICEA LION General 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 ICEA LION General Insurance Company (Tanzania) Limited with no contestation of the rating.
The information received from ICEA LION General Insurance Company (Tanzania) Limited and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements for 2013, unaudited year to date management accounts to 30 June 2013, the 2013 reinsurance cover notes, debtors provisioning policy document, risk framework, reserving methodologies, capital management policy.