Johannesburg, 31 October 2017 — Global Credit Ratings has today affirmed the national scale financial strength rating assigned to Sanlam Life Insurance (Tanzania) Limited of AA-(TZ), with the rating 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 Sanlam Life Insurance (Tanzania) Limited (“Sanlam Tanzania”) based on the following key criteria:
Sanlam Tanzania is the dominant player in the domestic life market, accounting for approximately 63% of total industry gross premiums in FY16. This is supported by the insurer’s entrenched position in the group credit life space, facilitated by long standing business relationships with key bancassurance and corporate affiliates. The rating is cemented by the explicit branding alignment and technical and operational support received from the Sanlam group.
Capitalisation is very strong, and a key rating strength. Risk adjusted statutory solvency measured at 5.9x at FY16 (FY15: 5.6x), supported by the large capital base, and low level of risk exposure. Carry over from the large existing capital base, and consistency in the contained nature of risk exposure, is likely to sustain elevated risk adjusted capitalisation metrics over the rating horizon. Note is taken of the insurer’s capital management plan, which aims to reduce risk adjusted capitalisation to more moderate levels over the medium term (albeit doing-so in a staggered manner). In this regard, as the insurer continues to align internal risk adjusted capital with group parameters, the insurer will continue to distribute the bulk of net profits as dividends. This will limit medium term capital build, and give rise to targeted solvency dilution, albeit with minimum capital aligned with group-wide targets.
Earnings capacity is sound, and supportive of the rating going forward, albeit lowering from previously very strong levels. Sanlam Tanzania’s operating margin equated to a healthy 14% in FY16 (FY15: 11%), supported by a favourable claims profile and fairly stable operating cost structure. Nevertheless, the operating margin has reduced from the high three year average of 27% sustained between FY12 and FY14, following persistent equity market underperformance. Management has budgeted for a similarly contained operating margin of 11.5% in FY17, premised on expected premium growth strain and lower investment yield, reflecting exposure to external headwinds going forward.
Sanlam Tanzania continued to reflect a very strong liquidity profile, supported by a conservative investment mix and large quantum of cash investments (FY16: TZS34.2bn). In this regard, strong review period cash flow generation underpinned incremental elevation in cash and equivalents (growing at a four year compound annual growth rate (“CAGR”) of 34%). Accordingly, cash coverage of policyholder liabilities remained high at 1.8x at FY16 (FY15: 1.7x). Liquidity strength is expected to be maintained over the rating horizon, as management continues to pursue its conservative investment approach.
The rating currently matches the national scale ceiling applicable to entities operating within the Tanzanian insurance industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. The rating exhibits downward sensitivity towards a reduction in capitalisation, while a sustained deterioration in operating performance may also result in downward rating pressure.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (April 2010)|
|Financial strength: A+(TZ)|
|Last rating (October 2016)|
|Financial strength: AA-(TZ)|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Long Term Insurance Companies, updated July 2017
African Life Assurance (Tanzania) Limited rating reports, 2010-2014
Sanlam Tanzania rating reports, 2015-2016
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. 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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Sanlam Life 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 has been disclosed to Sanlam Life Insurance (Tanzania) Limited with no contestation of the rating.
The information received from Sanlam Life Insurance (Tanzania) Limited and other reliable third parties to accord the credit rating included:
- Audited financial results to 31 December 2016
- Four years of comparative numbers
- Unaudited interim results to 30 September 2017
- Budgeted financial statements for 2017
- 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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Accounting||A process of recording, summarising, and allocating all items of income and expense of the company and analysing, verifying and reporting the results.|
|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 Base||The issued capital of a company, plus reserves and retained profits.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|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.|
|Industry Risk||The risk that defaults will arise in an industry because of factors specifically affecting that industry.|
|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.|
|Operating Margin||Measures the efficiency of profit generation from investments and underwriting.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.|
|Policyholder||The person in actual possession of an insurance policy.|
|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.|
|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.|
|Yield||Percentage return on an investment or security, usually calculated at an annual rate.|
For a detailed glossary of terms please click here
GCR affirms Sanlam Life Insurance (Tanzania) Limited’s rating of AA-(TZ); Outlook Stable.