Johannesburg, 4 December 2019 – GCR Ratings (“GCR”) has affirmed Phoenix of Tanzania Assurance Company Limited’s (“Phoenix Tanzania”) national scale financial strength (formerly claims ability) rating of AA-(TZ), with a Stable Outlook.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|Phoenix of Tanzania Assurance Company Limited||Financial strength||National||AA-(TZ)||Stable Outlook|
GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for Phoenix Tanzania was placed ‘Under Criteria Observation’. GCR finalised the review for Phoenix Tanzania under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for Phoenix Tanzania has been reviewed in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.
Phoenix Tanzania’s rating reflects the strong financial profile of the entity, evidencing strong liquidity and risk adjusted capitalisation, coupled with intermediate earnings, which are offset by a comparatively limited business profile.
Liquidity is viewed to be very strong, with coverage of net technical liabilities by cash and stressed financial assets equating to 4.6x and operational cash coverage registering at 48 months. Phoenix Tanzania’s liquidity is supported by conservative asset allocation and sound operational cash generation. Going forward, liquidity metrics are expected to register within a similar range given expected consistency in key drivers.
Risk adjusted capitalisation remained at strong levels over the review period, supported by robust internal capital generation, with the capital base adequately catering for the quantum of insurance and market risk exposures. Earnings capacity is viewed to be moderately strong, supported by strong investment returns and sound underwriting profitability. In this regard, the five year aggregated underwriting margin equated to 4% (FY18: 10%; FY14: -5%) with the corresponding return on revenue registering at 35% (FY18: 43%; FY17: 23%). Going forward, earnings are likely to remain within the same range, supported by the implementation of minimum rates and high premium quality.
Phoenix Tanzania evidenced a comparatively weak business profile, reflected by an intermediate market position, with the market share registering at 4.4% in FY18 (FY17: 3.9%; FY14: 5.4%). The volatility in market share was largely due to the implementation of a regulation in FY17 whereby all government related business moved to the National Insurance Corporation Tanzania. However, Phoenix Tanzania is regaining market traction, leveraging off partnerships with well franchised reinsurers and comparatively sound underwriting capacity that supports strong participation on corporate risks and industry risk pools, while increasing selling efforts on more retained retail lines. Furthermore, premium diversification is considered to be limited, with two lines of business contributing materially to gross premiums and all premiums being derived from the domestic market.
The stable outlook reflects expected stability within Phoenix Tanzania’s credit profile, while factoring in potential for earnings and competitive positon to remain at similar levels over the outlook horizon.
Positive rating action may stem from a sustained strengthening in earnings and competitive profile while all other credit protection are maintained at current strengths. Conversely, downward rating pressure may arise from a material weakening in earnings.
|Primary analyst||Godfrey Chingono||Deputy Sector Head: Insurance Ratings|
|Johannesburg, ZA||GodfreyC@GCRratings.com||+27 11 784 1771|
|Secondary analyst||Linda Matavire||Insurance Associate|
|Johannesburg, ZA||LindaM@GCRratings.com||+27 11 784 1771|
|Committee chair||Yvonne Mujuru||Sector Head: Insurance Ratings|
|Johannesburg, ZA||YMujuru@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Insurance Companies, May 2019|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, June 2019|
|GCR Insurance Sector Risk Scores, November 2019|
|Phoenix Tanzania rating reports, 2005-2018|
Phoenix of Tanzania Assurance Company Limited
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Claims paying ability||Initial||National||AA-(TZ)||Stable||November 2005|
Risk Score Summary
|Risk scores||Phoenix of Tanzania Assurance Company Limited|
|Country risk score||4.00|
|Sector risk score||3.25|
|Management and governance||0.00|
|Accident||An unplanned event, unexpected and undesigned, which occurs suddenly and at a definite place.|
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Balance Sheet||Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|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.|
|Catastrophe||An event, which causes a loss of extraordinary magnitude.|
|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.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|Equity||Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|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.|
|Financial Flexibility||The company’s ability to access additional sources of capital funding.|
|Income Statement||A summary of all the expenditure and income of a company over a set period.|
|Interest||Money paid for the use of money.|
|Investment Income||The income generated by a company’s portfolio of investments.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|Net Profit||Trading/operating profits after deducting the expenses detailed in the profit and loss account such as interest, tax, depreciation, auditors’ fees and directors’ fees.|
|Net Retention||The amount of insurance that a ceding company keeps for its own account and does not reinsure.|
|Operational Risk||The risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. This includes legal risk, but excludes strategic risk and reputational risk.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|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. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.|
Salient Points of Accorded Ratings
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of rated entities, 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.
The credit rating has been disclosed to Phoenix of Tanzania Assurance Company Limited. 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.
Phoenix of Tanzania Assurance Company Limited participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Phoenix of Tanzania Assurance Company Limited and other reliable third parties to accord the credit rating included:
- Audited financial statements as at 31 December 2018;
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements for 2019;
- Unaudited interim results to 31 July 2019;
- Reinsurance cover for 2019; and
- Other relevant documents.