Johannesburg, 28 September 2018 — 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 2019.
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 factors:
Sanlam Tanzania 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 62% in FY17 (FY16: 63%). In GCR’s view, Sanlam Tanzania is likely to remain the dominant player in the domestic market, 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.
Risk adjusted capital adequacy remained very strong, supported by a sizeable capital base, and relatively low level of market exposure and insurance risk. Accordingly, statutory solvency registered at a very high 5.0x at FY17 (FY16: 5.9x). Risk adjusted capitalisation is likely to remain within a very strong range over the outlook horizon, supported by the well contained nature of risk exposure. Nevertheless, over the medium term, this metric is likely to register within a lower range, given the insurer’s capital management plan, which aims to gradually reduce risk adjusted capitalisation to more moderate levels (to align with group parameters). As such, Sanlam Tanzania will continue to distribute the bulk of net profits and portions of distributable reserves 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. The quality of the reinsurance panel reflects strong counterparty strength, with maximum retention per risk and event equating to a well contained 1.1% of FY17 capital.
Earnings capacity registered within a sound range over the last two years, compared to the very strong levels recorded historically. In this respect, the operating margin stabilised at a healthy level of 14% in FY17 (FY16: 11%), compared to robust levels, averaging 28% recorded over the start of the review period. This is largely a function of a significant reduction in investment returns, with total cumulative investment income reducing to TZS11bn over the last three years relative to TZS16bn recorded between FY13 and FY14. Looking ahead, the manifestation of premium volume growth targets is likely to sustain earnings capacity within a sound range.
Sanlam Tanzania continued to reflect a very strong liquidity profile, supported by a conservative investment mix and large quantum of liquid investments. In this regard, liquid assets constituted a higher 90% of the total investment portfolio at FY17 (FY16: 85%), largely driven by the reallocation of funds from listed equities to government securities. As such, liquidity metrics displayed relative stability, with liquid assets covering policyholder liabilities by 1.5x at FY17 (FY16: 1.6x), while total investments covered policyholder liabilities by 1.6x (FY16: 1.9x). Liquidity strength is expected to be sustained over the rating horizon given management’s plans to retain 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. Conversely, negative rating action may stem from a reduction in risk adjusted capitalisation below expectations, 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 2017)|
|Financial strength: AA-(TZ)|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Long Term Insurance Companies, updated May 2018
African Life Assurance (Tanzania) Limited rating reports, 2010-2014
Sanlam Tanzania rating reports, 2015-2017
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. 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 process 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.
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 2017
• Four years of comparative financial statements
• Unaudited interim results to June 2018
• Budgeted financial statements for 2018
• 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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|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.|
|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.|
|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.|
|Deductible||The portion of an insured loss to be borne by the insured before he is entitled to recovery from the 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.|
|Experience||A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time period.|
|Financial Flexibility||The company’s ability to access additional sources of capital funding.|
|International Scale Rating LC||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.|
|Investment Income||The income generated by a company’s portfolio of investments.|
|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.|
|Loss||The happening of the event for which insurance pays.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|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.|
|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|
|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.|
|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.|
|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.|
|Stop Loss||Any provision in a policy designed to cut off an insurer’s losses at a given point. In effect, a stop loss agreement guarantees the loss ratio of the insurer.|
|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.|
For a detailed glossary of terms please click here.
GCR affirms Sanlam Life Insurance (Tanzania) Limited’s rating of AA-(TZ); Outlook Stable.