Nairobi, 23 December 2020 – GCR Ratings (“GCR”) has affirmed Phoenix of Tanzania Assurance Company Limited’s (“Phoenix Tanzania”) national scale financial strength rating of AA-(TZ), with the Outlook accorded as Stable.
|Rated entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|Phoenix of Tanzania Assurance Company Limited||Financial strength||National||AA-(TZ)||Stable Outlook|
Phoenix Tanzania demonstrates a very strong liquidity position, supported by conservative asset allocation coupled with review year reduction in net technical liabilities. Accordingly, cash and stressed financial assets coverage of net technical provisions improved to 6.1x at FY19 (FY18: 4.6x), while coverage of operational cost requirements equated to 44 months (FY18: 48 months). Looking ahead, the liquidity ratio is expected to slightly moderate, albeit remaining above 5.0x coverage following management’s plan to increase investment in long-dated, higher yielding government securities.
Risk adjusted capitalisation is viewed to be strong, evidenced by a stable GCR capital adequacy ratio (“CAR”) of 4.4x, underpinned by sustained earnings generation and full profit retention. Nevertheless, the insurer’s capital quality is viewed negatively due to a material exposure to investment property, which accounted for 40% of the entity’s capital at FY19. From a statutory solvency standpoint, the underwriter met the minimum regulatory requirement closing with a solvency position of 10x at FY19. GCR expects capital strength to be sustained over the rating horizon, underpinned by sound earnings generation and retention.
Earnings are assessed to be strong, reflected by positive average underwriting profitability and sustained healthy investment income. As such, the insurer posted an improved review period aggregate underwriting margin of 5.3% (prior review period average: 3.5%), while the return on revenue was sustained above 30%. Earnings are expected to slightly improve given observed growth in profitable lines of business, along with expectations of sound investment income generation.
The rating is negatively impacted by the insurer’s limited business profile. In this regard, Phoenix Tanzania maintained an intermediate competitive position, with a market and relative market share of 4.5% and 1.1x in FY19 (FY18: 4.4% and 1.1x), respectively. The premium base is somewhat diversified, with three lines of business contributing materially to the gross premium base. The insurer’s revenue source is geographically concentrated, given that all premiums are derived from the primary market. GCR expects competitive position to slightly improve, supported by an expansive branch network and client retention.
GCR did not apply group support due to MUA Insurance (Kenya) Limited’s (“the group”) weaker credit profile, albeit with MUA Ltd’s (“the ultimate parent”) credit profile being assessed at relatively stronger levels. The rating therefore factored in operational insulation, taking cognisance of assessed limited transfer of risks from the group, the absence of material related party transactions and the ultimate parent’s developing strategy.
The Stable Outlook reflects GCR’s expectations of persistent stability in liquidity and capitalisation, while factoring in the likelihood of a sustained improvement in earnings. Competitive position is expected to improve, with the relative market share anticipated to lie between 1.2x – 1.4x over the next 12 months. The Outlook further captures GCR CAR and liquidity coverage projections of at least 4x over the next 12 months, with the five-year moving underwriting margin likely to stabilise within the 5.5% to 6% range.
Positive rating action may stem from a sustained improvement in earnings and the group’s credit profile, while all other credit protection metrics remain within strong to very strong ranges. Conversely, downward rating pressure may arise from a deterioration in the group’s credit profile and/or increased evidence of credit linkages between Phoenix Tanzania and the group.
|Primary analyst||David Mburu||Analyst: Insurance Ratings|
|Nairobi, KE||DavidM@GCRratings.com||+254 20 367 3618|
|Secondary analyst||Linda Matavire||Analyst: Insurance Ratings|
|Johannesburg, ZA||LindaM@GCRratings.com||+27 11 784 1771|
|Committee chair||Tichaona Nyakudya||Senior Analyst: Insurance Ratings|
|Johannesburg, ZA||TichaonaN@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, November 2020|
|GCR Insurance Sector Risk Scores, July 2020|
Phoenix of Tanzania Assurance Company Limited
|Rating class||Review||Rating scale||Rating||Outlook||Date|
|Claims paying ability||Initial||National||AA-(TZ)||Stable||November 2005|
|Financial strength||Last||National||AA-(TZ)||Stable||December 2019|
Risk score summary
|Rating components and factors||Risk score|
|Country risk score||3.75|
|Sector risk score||3.00|
|Management and governance||0.00|
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 is based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating is an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to the rated entity. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual 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 the entity and other reliable third parties to accord the credit rating included:
- Audited financial results as at 31 December 2019;
- Four years of comparative audited financial statements to 31 December 2019
- Full year budgeted financial statements to 31 December 2020.
- Unaudited interim results to 30 June 2020.
- Other relevant documents.