Johannesburg, 20 Oct 2015 — 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 is valid until September 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to ICEA LION General Insurance Company (Tanzania) Limited (“ICEA LION Tanzania”) based on the following key criteria:
ICEA LION Tanzania’s internal capital generation (TZS2.9bn over the past two years) was positively impacted by TZS2.1bn in fair value gains. Accordingly, capital adequacy has been maintained at moderately strong levels, albeit that the capital base remained limited at TZS5.9bn (USD3.4m) at FYE14 in absolute terms. Going forward, GCR anticipates that capital adequacy will remain at a sound level, taking into account the company’s large retained growth objectives.
Liquidity metrics remained at strong levels over the review period, supported by a conservative investment strategy. GCR expects this trend to persist over the medium term.
Overall, the insurer evidences a level of asset risk. To this end, market risk is considered moderate, with high risk financial assets representing an increased 52% of FYE14 capital (FYE13: 44%). This is viewed to be compounded by the large quantum of premium receivables (FY14: TZS1.2bn), of which a large amount (TZS569m) has been outstanding for more than 180 days.
Material reinsurance counterparties evidence a moderately strong aggregate level of counterparty strength. Furthermore, maximum net deductibles per risk and event on XoL are contained at relatively conservative levels (largest exposure: 0.8% of FYE14 capital).
ICEA LION Tanzania’s underwriting profitability has measured at weak levels, given the losses recorded over the bulk of the review period. This is largely due to the insurer’s sustained lack of net premium scale, undermining cost absorption. GCR expects the insurer’s underwriting trend to remain pressured by a comparatively elevated expense ratio over the rating horizon (albeit potentially reducing should target volumes be achieved). Investment income, bolstered by high fair value gains more recently, is expected to continue to support overall profitability. A partially offsetting consideration is the concentration risk displayed in the insurer’s distribution network, with the single largest broker representing a sizeable contributor to premiums, at 41% of GWP.
The insurer’s market position is considered limited, with a GWP market share of 3.3% in FY14. In response, the insurer plans to strengthen its participation in the retail and SME market in order to enhance its market profile and underwriting scale (with a more consistent claims experience and a lower expense ratio budgeted to be realised). As such, the successful execution of the targeted growth strategy presents a key rating consideration going forward.
Upward rating movement could develop if the insurer demonstrates sustained revenue growth in targeted products and markets, coupled with improved underwriting results. This must be combined with the maintenance of strong risk adjusted credit protection metrics. The rating could be downgraded if the insurer were to exhibit a material weakening in risk adjusted capitalisation, regulatory capital and/or liquidity metrics. Furthermore, a deterioration in asset quality could result in negative rating pressure.
|NATIONAL SCALE RATINGS HISTORY|
Initial rating (August 2006)
|Claims paying ability: A(TZ)|
|Last rating (September 2014)|
|Claims paying ability: A(TZ)|
|Primary Analyst||Committee Chairperson|
|Sheri Few||Marc Chadwick|
|Senior Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
|Junior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
ICEA LION Tanzania rating reports, 2006-2014
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.
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 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;
- Audited financial results of Company as at 31 December 2014
- Four years prior audited financial statements
- Unaudited interim results as per 30 June 2015
- Budgeted 2015
- Statutory returns 2014
- The current year reinsurance/retrocession cover notes
- Other non-public statistical information
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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Actuarial||Having to do with insurance mathematics.|
|Assets||The items on the balance sheet of the insurer which show the book value of property owned.|
|Assurance||Terminology used to describe life insurance.|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Bond||A certificate issued by a government or corporation as evidence of a debt.|
|Capacity||The largest amount of insurance or reinsurance available from a company.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Insurance||A formal social device for reducing risk by transferring the risks of several individual entities to an insurer.|
|Insured||A person or organisation covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss||The happening of the event for which insurance pays.|
|Long term (“LT”)||Not current; ordinarily more than one year.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|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. Also, the total securities owned by an insurer.|
|Provision||A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.|
|Rate||The pricing factor upon which the insurance buyer’s premium is based.|
|Rating||The statistical process by which insurers determine risks and pricing for the basic classes of insurance.|
|Reinsurance||The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|Securities||Evidences of a debt or of ownership, such as stocks, bonds, and checks.|
|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.|
|Surplus||The excess of assets over liabilities.|
|Valuation||Estimation of the value of an item, usually by appraisal.|
For a detailed glossary please click here