Announcements Insurance Rating Alerts

GCR affirms Reliance Insurance Company (Tanzania) Limited’s national scale financial strength rating of A(TZ), Outlook Stable

Rating action

Nairobi, 9 October 2020 – GCR Ratings (“GCR”) has affirmed Reliance Insurance Company (Tanzania) Limited’s (“Reliance”) national scale financial strength rating of A(TZ), with the outlook accorded as Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Reliance Insurance Company (Tanzania) Limited Financial strength National A(TZ) Stable Outlook

Rating rationale

The rating of Reliance reflects the strengths and weaknesses of Reliance and its subsidiary (together “the group”), given that the insurer is the core operating entity of the group. In this respect, the rating is underpinned by the group’s very strong risk adjusted capitalisation, intermediate earnings and liquidity. Nevertheless, the business profile remains a rating restraint, characterised by an average market position and moderate levels of premium diversification.

Risk adjusted capitalisation remained very strong, supported by the recent turnaround in earnings performance. As such, the GCR capital adequacy ratio (“CAR”) improved to 3.3x at FY19 (FY18: 2.3x), while the statutory CAR remained high at 2.7x (FY18: 3.3x). Going forward, risk adjusted capitalisation could be assessed at similar levels should the recent turnaround in profitability be sustained and contribute to capital growth, considering potential risks emanating from the COVID-19 pandemic.

The insurer’s earnings are assessed to be intermediate, taking into account the recent turnaround in underwriting results and enhanced bottom line performance. The turnaround in underwriting profitability was largely driven by a reduction in operating expenses, offsetting a moderate increase in claims incurred. In this regard, the operating expense ratio improved to 45% (FY18: 77%), while the claims ratio closed higher at 40% (FY18: 34%), attributable to an increase in motor commercial claims. Resultantly, the group reported an underwriting surplus of TZS784m (prior two-years: TZS3.2bn loss), translating to an underwriting margin of 6% (prior two-year margin: -15%). This was further supported by healthy investment income, which grew to TZS2.4bn, with the group closing the year with a net profit after tax of TZS2.5bn. While note is taken of the reduction in earnings in 1H F20 caused by flood claims incurred in January, the insurer’s ability to sustain earnings turnaround over the rating outlook may be positively viewed.

Liquidity was maintained at an intermediate level, supported by conservative asset allocation. Accordingly, cash and stressed financial assets coverage of net technical provisions stabilised at 1.8x at FY19, while coverage of operational cost requirements was sustained at 24 months. Liquidity metrics are expected to measure at similar levels going forward given management’s strategy of maintaining the current asset allocation.

The rating is negatively impacted by the insurer’s limited business profile. In this regard, Reliance maintained an intermediate competitive position, with a market and relative market share of 3.1% and 0.8x in FY19, 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 the competitive position and business mix to be maintained at similar levels over the rating outlook.

Outlook statement

The Stable Outlook reflects GCR’s expectations of persistent stability in capitalisation, while factoring in the likelihood of a sustained improvement in earnings. Accordingly, the GCR CAR is projected to trend above 3x over the next 12 months, with the underwriting margin likely to stabilise within the 0% to 5% range.

Rating triggers

Positive rating action may stem from a sustainable improvement in earnings, while all other credit protection metrics remain within strong to very strong ranges. Conversely, downward rating pressure may arise from a reduction in market share and/ or earnings strain.

Analytical contacts

Primary analyst David Mburu Analyst: Insurance Ratings
Nairobi, KE DavidM@GCRratings.com +254 20 367 3618
Secondary analyst Sylvia Mhlanga Senior Analyst: Insurance Ratings
Johannesburg, ZA SylviaM@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, May 2020
GCR Insurance Sector Risk Scores, July 2020

Ratings history

Reliance Insurance Company (Tanzania) Limited

Rating class Review Rating scale Rating Outlook Date
Claims paying ability Initial National A(TZ) Stable July 2008
Financial strength Last National A(TZ) Stable October 2019

Risk score summary

Rating components and factors Risk score
Operating environment 6.75
Country risk score 3.75
Sector risk score 3.00
Business profile (1.00)
Competitive position (0.25)
Premium diversification (0.75)
Management and governance 0.00
Financial profile 2.75
Earnings 0.25
Capitalisation 2.00
Liquidity 0.50
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total score 8.50

Glossary

Premium The price of insurance protection for a specified risk for a specified period of time.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
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.
Retention The net amount of risk the ceding company keeps for its own account.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Securities Various instruments used in the capital market to raise funds.
Security One of various instruments used in the capital market to raise funds.
Senior A security that has a higher repayment priority than junior securities.
Short Term Current; ordinarily less than one year.
Underwriting The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.

Salient Points of Accorded Rating

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.
  • Reinsurance cover notes for 2020; and
  • Other relevant documents.
image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.