Johannesburg, 1 November 2016 — 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 2017.
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 continues to dominate the local life arena, accounting for 59% of total gross premiums in FY15, with the nearest rival holding an estimated 21% market share. The very high market share is underpinned by an entrenched position in the credit life space, which is 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 measured at a strong level, with the shareholders’ funds to policyholder liabilities ratio equating to 90% at FYE15 (FYE14: 157%). Over the past two years, increased reserving, coupled with high dividend extractions (relative to operating income) has resulted in a moderation of key capital metrics. Going forward, the insurer plans to distribute the bulk of future net profits as dividends, with limited consequent capital generation anticipated over the rating horizon. The large existing capital base is expected to support strong risk adjusted capitalisation over the rating horizon, albeit that the absence of capital build will give rise to a degree of solvency dilution (also taking the insurer’s high premium growth targets into account). Comfort is derived from the insurer’s internal capital management strategy (overseen at group level), which seeks to align internal risk adjusted capital with group parameters.
Sanlam Tanzania has displayed sound earnings generative capacity over the review period, supported by favourable claims development, coupled with a reasonably contained cost base. In this regard, the review period average operating margin equated to 22%. The liquidation of a portion of the listed equity portfolio, in conjunction with fairly benign market returns, saw the operating margin moderate to 11% in FY15. This notwithstanding, the Value of New Business (as per an independent actuarial assessment at FYE15) remained at healthy levels, indicative of the quality of new business being written. Going forward, management expects investment income to remain subdued (over the short term at least), impacting negatively on bottom line performance metrics relative to historical highs. However, stable operating ratios are expected to sustain sound earnings capacity.
Liquidity is viewed to be strong, supported by fairly conservative investment allocations, coupled with adequate asset-liability matching. Although liquidity metrics have softened in FY15, rising cash and equivalent balances are expected to support liquidity at a strong level over the short term.
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 (September 2015)|
|Financial strength: AA-(TZ)|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Long Term Insurance Companies, updated July 2016
Sanlam Tanzania rating reports, 2010-2015
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 2015
- Four years of comparative numbers
- Unaudited interim results to 31 August 2016
- Budgeted financial statements for 2016
- 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.|
|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.|
|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.|
|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.|
|Industry Risk||The risk that defaults will arise in an industry because of factors specifically affecting that industry.|
|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.|
|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.|
|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|
|Rating Outlook||A rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|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.|
For a detailed glossary of terms, please click here
GCR affirms Sanlam Life Insurance (Tanzania) Limited’s rating of AA-(TZ); Outlook Stable.