Johannesburg, 31 October 2018 — 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 2019.
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 liquidity metrics were maintained at strong levels throughout the review period, supported by sound operating cash flow generation, and conservative asset allocation. In this respect, claims cash coverage including government bonds equated to 46 months at FY17 (FY16: 30 months; FY15: 22 months), while cash coverage of net technical liabilities equated to 1.6x (FY16: 1.3x; FY15: 1.0x). GCR expects liquidity measures to register within a strong range over the outlook horizon, supported by sound cash flow generation and conservative asset allocation.
Risk adjusted capitalisation remained at strong levels over the rating horizon, supported by sustained reductions in underwriting risk, in tandem with a capital base catering for insurance and market risk exposures. Accordingly, the adjusted international solvency margin is conservatively estimated at 147% at FY17 (FY16: 139%). Risk adjusted capital adequacy may remain within a similar range over the outlook horizon, supported by internal capital generation. Furthermore, maximum net deductibles are limited to conservative levels relative to capital, while the reinsurance panel reflects an intermediate aggregate credit profile.
Reliance’s estimated market share remained constrained, with an estimated share of total industry gross premiums of 3% in FY17 (FY16: 4%). This was on the back of the new directive that was passed in 2017 stating that all government linked insurance contracts should be placed with the National Insurance Corporation of Tanzania (“NIC”), with the private sector having to compete for a shrinking pool of risks. In GCR’s view, growth constraints are likely to persist over the rating horizon, impacted by the directive and a shift in competitive dynamics.
Earnings capacity is viewed to be intermediate, supported by healthy investment returns. In this regard, cumulative net profit after tax amounted to TZS10.6bn over the review period. Note is, however, taken of the notable reduction in underwriting performance in FY17, stemming from loss of scale, and exacerbated by an escalation in the cost base. In this regard, the five year aggregated underwriting margin equated to 3% (FY17: -13.7%; FY16: 2%) with the investment yield averaging 12% over the review period (FY17: 12%). 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 (77%), 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 over the medium term may result from a strengthening in the insurer’s competitive profile, together with a sustainable turnaround in earnings capacity. This would need to be supported by strong 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 (October 2017)|
|Claims paying ability: A+(TZ)|
|(011) 784 – 1771|
|Senior Credit Analyst|
|(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
Reliance rating reports, 2008-2017
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.
The information received from Reliance Insurance Company (Tanzania) Limited and other reliable third parties to accord the credit rating included:
- The 2017 audited annual financial statements 4 years of comparative audited numbers
- Unaudited interim results to 30 June 2018
- Budgeted financial statements for 2018
- 2018 reinsurance cover notes
- Other related documents.
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.
|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.