Johannesburg, 11 December 2019 – GCR Ratings (“GCR”) has affirmed Sanlam Life Insurance (Tanzania) Limited’s (“Sanlam Life Tanzania”) national scale financial strength rating of AA-(TZ), Stable Outlook.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|Sanlam Life Insurance (Tanzania) Limited||Financial strength||National||AA-(TZ)||Stable Outlook|
GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for Sanlam Life Tanzania was placed ‘Under Criteria Observation’. GCR finalised the review for Sanlam Life Tanzania under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for Sanlam Tanzania has been revised in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.
Sanlam Life Tanzania’s national scale financial strength rating reflects a strong financial profile and sound business profile. These factors are complemented by implicit group support from its ultimate parent, Sanlam Limited.
Risk adjusted capital adequacy remained very strong, supported by a sizeable capital base, and relatively low level of market and insurance risk exposures. Note is taken of material dividend extractions reducing the absolute capital value from TZS17.3m at FY14 to TZS12.8m at FY18, albeit with management targeting a sound buffer above minimum statutory solvency requirement. In this respect, risk adjusted capitalisation is likely to remain within a strong range over the outlook horizon, supported by well contained risk exposures.
Earnings capacity is viewed to be sound, supported by a quality book that evidences a favourable operating performance. This is evidenced by a solid average operating margin of 13% and a return on revenue of 12% over the last three year period. Strong earnings are expected over the rating horizon, although ongoing efforts to increase business scale is likely to moderate earnings strength over the medium term, due to margin compression in select lines.
Conversely, liquidity is viewed to be negative to the rating, with the liquidity ratio equating to 1.2x at FY18 (FY17: 1.4x), while cash and stressed financial assets covered operational costs by 11 months (FY17: 10 months). GCR expects liquidity to register within a similar range going forward.
Sanlam Life Tanzania’s competitive position is very strong, supported by the insurer’s entrenched position in the group credit space. Accordingly, the insurer’s share of total long term industry premiums equated to a very high 63% in FY18 (FY17: 60%). In GCR’s view, Sanlam Tanzania is likely to remain the dominant player in the domestic market, facilitated by a strong brand as well as long standing business relationships with key bancassurance and corporate affiliates. On the other hand, premium diversification is viewed to be limited, with the bulk of premiums being derived from credit life. This is further compounded by limited geographic diversification, with all premiums sourced from Tanzania.
Sanlam Tanzania’s rating derives upliftment from implied parental support from Sanlam Limited, given indirect majority ownership, brand alignment and history of performance.
The stable outlook reflects expectations of continued strength in risk adjusted capitalisation, competitive position and earnings, while factoring potential for liquidity to remain at similar levels over the outlook horizon.
Positive rating action may stem from a sustainable improvement in liquidity and premium diversification while all other credit protection metrics remain within a strong range. Conversely, the rating may be downgraded should the insurer evidence a reduction in risk adjusted capital adequacy, and/or a weakening in earnings below expectations.
|Primary analyst||Sylvia Mhlanga||Credit Analyst|
|Johannesburg, ZA||SylviaM@GCRratings.com||+27 11 784 1771|
|Committee chair||Godfrey Chingono||Deputy Sector Head: Insurance Ratings|
|Johannesburg, ZA||GodfreyC@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, June 2019|
|GCR Insurance Sector Risk Scores, July 2019|
Sanlam Life Insurance (Tanzania ) Limited
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Financial strength||Initial||National||A+(TZ)||Stable||April 2010|
Risk Score Summary
|Country risk score||4.00|
|Sector risk score||3.25|
|Management and governance||0.00|
|Accident||An unplanned event, unexpected and undesigned, which occurs suddenly and at a definite place.|
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Balance Sheet||Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|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.|
|Catastrophe||An event, which causes a loss of extraordinary magnitude.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|Equity||Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|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.|
|Financial Flexibility||The company’s ability to access additional sources of capital funding.|
|Income Statement||A summary of all the expenditure and income of a company over a set period.|
|Interest||Money paid for the use of money.|
|Investment Income||The income generated by a company’s portfolio of investments.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|Net Profit||Trading/operating profits after deducting the expenses detailed in the profit and loss account such as interest, tax, depreciation, auditors’ fees and directors’ fees.|
|Net Retention||The amount of insurance that a ceding company keeps for its own account and does not reinsure.|
|Operational Risk||The risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. This includes legal risk, but excludes strategic risk and reputational risk.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|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.|
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 was based solely on the merits of rated entities, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to Sanlam Life Insurance (Tanzania) Limited. 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.
Sanlam Life Insurance (Tanzania) Limited participated in the rating process via face-to-face 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 Sanlam Life Insurance (Tanzania) Limited and other reliable third parties to accord the credit rating included:
- Audited financial statements as at 31 December 2018;
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements for 2019;
- Unaudited interim results to 30 June 2019;
- Reinsurance cover for 2019; and
- Other relevant documents.