Johannesburg, 10 Dec 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Real Insurance Tanzania Limited of BB+(TZ); with the outlook accorded as Stable. The rating(s) are valid until 10/2014.
Global Credit Ratings has accorded the above credit rating(s) on Real Insurance Tanzania Limited based on the following key criteria:
Real Insurance Tanzania Limited (“Real Tanzania”) was incorporated in 1998. The insurer is 55% owned by Kenya based Real Kenya Insurance Company Limited (“Real Kenya”), with the balance of shares held by Zeniki Investments (10%) and Roots Holdings (35%). Real Kenya is currently in talks with a potential investor over a majority participation in the business by means of a share-buyout. Pending the successful conclusion of negotiations, this could see the shareholding structure change materially and have significant ramifications for the underlying subsidiaries. In the absence of clarity with regards to the company’s operational strategy going forward, GCR will continue to monitor these developments.
Notwithstanding the above, the rating remains adversely impacted by operational challenges at Real Kenya, which led to the downgrade of its national scale claims paying ability rating of BBB(KE) to BB-(KE) by GCR in July 2012. Moreover, note is taken of the protracted decline in Real Tanzania’s international solvency over the review period to a low of 35% in F12, whilst statutory solvency coverage remains thin. A further decline in international solvency to 31% is anticipated for F13, a level which constitutes GCR’s minimum comfort level for the current rating. In addition, capital risk is further exacerbated by a sharp decline in claims reserving in recent years to virtually nil relative to F12 risk premiums, thus pointing to a marked overstatement of both earnings and solvency. Applying a moderately conservative ratio of outstanding claims to NWP of 15% for F12 would see solvency fall to a low 20% for F12. The conservative investment strategy and the relatively sizeable cash balance was viewed favourably. Nonetheless, stemming from sustained claims pressure, claims cash coverage has gradually declined over the review period. Increased operational risk stems from the relatively high gearing of the risk base towards motor (at 56% of NPE in F12), particularly in the context of the volatile underwriting trend exhibited by this line of business. Positively, the panel of participants on the insurer’s treaty reinsurance programme is generally considered sound, whilst net deductibles on XoL per risk and event are contained at reasonable levels relative to capital. Furthermore, underpinned by robust volumes and cost efficiencies, underwriting profitability was restored in F12. However, the severe inadequacy of claims reserving and volatile underwriting trend displayed over the review period implies increased reliance on investment income to support earnings.
An upward adjustment of the rating remains subject to the establishment of adequate claims reserves, whilst maintaining underwriting profitability over a protracted period. Further, a demonstrated ability to reverse the recent declining solvency trend, and sustained improvement of capital reserves would be favourably viewed. Downward rating pressure could emanate from a material deterioration in the financial position related to under reserving. In addition, a further decline in key credit protection measures below current levels and/ or the adoption of a notably aggressive investment stance would also be negatively viewed.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Oct/2008)
Claims paying ability: A-(TZ)
Last rating (Aug/2012)
Claims paying ability: BB+(TZ)
|Primary Analyst||Secondary Analyst|
|Benjamin Schmidt||Damien Dube|
|+27 11 784 1771||+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
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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.
Real Insurance 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 Real Insurance Tanzania Limited with no contestation of the rating.
The information received from Real Insurance 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), unaudited year to date management accounts to unaudited year to date management accounts to August 2013, the 2013 reinsurance cover notes, statutory returns for 2012 and 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.