Johannesburg, 24 October 2017 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Reliance Insurance Company (Tanzania) Limited of A+(TZ), with the outlook accorded as Stable. The rating is valid until September 2018.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Reliance Insurance Company (Tanzania) Limited (“Reliance”) based on the following key criteria:
Reliance’s key liquidity measures registered at strong levels over the review period. In this regard, cash coverage of net technical provisions equated to 1.3x at FY16 (FY15: 1.0x), while the claims cash coverage ratio registered at 30 months (FY15: 22 months). Liquidity metrics are likely to remain at strong levels over the rating horizon, underpinned by conservative asset allocation and sound operating cash flow generation.
Risk adjusted capitalisation registered within a strong range, supported by the decrease in underwriting risk (given premium contractions recorded in FY16). In this respect, the international solvency margin equated to a higher 98% at FY16 (FY15: 68%; review period average: 66%). Risk adjusted capitalisation is likely to remain within a similar range over the rating horizon, on the back of sustained growth constraints, in tandem with reduced asset risk exposure, partially offsetting a relatively elevated level of credit risk. Furthermore, the maximum net deductibles are limited to conservative levels relative to capital, while the reinsurance panel reflects an intermediate aggregate credit profile.
Reliance’s estimated share of short term insurance industry premiums equated to a lower 4% in FY16 (FY15: 6%), on the back of material premium contraction stemming from loss of business from three key brokers. This was further compounded by the new directive stating that all government related business (including parastatals) should be undertaken by the National Insurance Company Tanzania. In GCR’s view, growth constraints are likely to persist over the rating horizon, impacted by the new cash and carry regulations, sluggish motor growth and the shift in competitive dynamics.
Underwriting profitability compression was evidenced in FY16, on the back of reduced scale efficiencies. In this respect, the underwriting margin equated to 2% in FY16 (FY15: 10%), which measured below the three year aggregated margin of 7%. GCR notes the potential for persistent underwriting profitability pressure over the outlook horizon, given expected growth constraints and associated loss of scale benefits. Accordingly, the extent to which this impacts on the insurer’s credit profile is expected to be a key rating consideration over the short to medium term.
The insurer displays a level of earnings concentration. Nonetheless, in GCR’s view, the heavy weighting of motor in the risk base (66%), is partially offset by the low product risk associated with this line of business and the more recent turnaround in performance evidenced.
Upward rating movement may result from a strengthening in the insurer’s competitive profile, together with sustained strength in risk adjusted capital adequacy and liquidity. Conversely, the rating may be downgraded if the insurer were to evidence a sustained weakening in earnings capacity, reduction in risk adjusted capital adequacy, and/or a weakening in liquidity metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (July 2008)|
|Claims paying ability: A (TZ)|
|Last rating (September 2016)|
|Claims paying ability: A+(TZ)|
|Primary Analyst||Secondary Analyst|
|Yvonne Mujuru||Zwivhuya Mukosi|
|Sector Head: Insurance Ratings||Junior Credit Analyst|
|(011) 784 – 1771||(011) 784 – 1771|
|Senior Credit Analyst|
|(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2017
Reliance rating reports, 2008-2016
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/RATING-SCALES-DEFINITIONS. 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.
Reliance 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 Reliance Insurance Company (Tanzania) Limited with no contestation of the rating.
The information received from Reliance Insurance Company (Tanzania) Limited and other reliable third parties to accord the credit rating included:
- The 2016 audited annual financial statements 4 years of comparative audited numbers
- Unaudited interim results to 31 July 2017
- Budgeted financial statements for 2017
- 2017 reinsurance cover notes
- Other related documents.
The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.
|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.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|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.|
|International Scale Rating (“ISR”)||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|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.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|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.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short Term||Current; ordinarily less than one year.|
|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.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a more detailed glossary of terms, please click here
GCR affirms Reliance Insurance Company (Tanzania) Limited’s rating of A+(TZ); Outlook Stable.