Johannesburg, 16 Oct 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Tanzania National Reinsurance Corporation Limited of A+(TZ); with the outlook accorded as Stable. Furthermore, the international scale rating was maintained at B+ ; with the outlook affirmed as Stable. The rating(s) are valid until 9/2014.
Global Credit Ratings has accorded the above credit rating(s) on Tanzania National Reinsurance Corporation Limited based on the following key criteria:
Incorporated in 2001, Tanzania National Reinsurance Corporation Limited (“Tan Re”) is the only domestically registered reinsurer in Tanzania, benefiting from a 20% mandatory cession in F12. The company’s market position, however, is likely to weaken going forward amidst a confirmed reduction in cession rates to 15% in F13 and further to 10% post FYE13, particularly given currently shallow domestic market penetration (with Tan Re’s 24% local representation in F12 being only 4 percentage points above the prevailing F12 compulsory cession). The company’s three major shareholders comprise government institutions (58%), local insurance companies (29%) and a foreign/strategic investor, namely ZEP Re (6%).
The rating is significantly underpinned by strong demonstrated shareholder support, with a further TShs3.6bn in additional capital injected into the business up to 3Q F13. Coupled with persistent sound operating results, this has seen the international solvency margin strengthen to a review period high of 71% as at 3Q F13 (F12: 50%), a level which is forecast to be sustained until FYE13. Nonetheless, significant dividend drawings continue to limit capital accumulation, whilst capital risk is exacerbated by very low claims reserving relative to risk premiums, which points to a marked overstatement of both earnings and solvency. Stressing capital for more reasonable claims reserving (15% of NWP used as a proxy), and assuming a 50% dividend payout ratio, the adjusted international solvency margin equated to 56% as at 3Q F13 (F12: 39%). This level is considered commensurate with the current rating. Following the recent commencement of a sizeable property construction project (to be funded entirely from internal funds), some degree of liquidity strain has been experienced of late. With further capital outlays anticipated for F13 and F14, this is likely to introduce an added degree of investment and capital risk over the short to medium term, albeit the liquidity position is forecast at an adequate level for F13. The underwriting margin softened notably in F12 and is forecast to remain relatively subdued in F13. This is attributed to a weakened claims experience, which highlights the reinsurer’s limited pricing power associated with the mandatory cession centred premium generation. Positively, the treaty retrocession programme is mainly led by secure rated counterparts, whilst net retention per risk and event remains adequately contained relative to FYE12 capital (at a respective 0.7% and 1.3%).The international rating remains constrained by the fact that all of the reinsurer’s assets are domiciled in Tanzania, which in context of the low indicative sovereign rating for the country of B (single B) implies heightened country risk.
An upward adjustment of the rating remains subject to a demonstrated and sustainable improvement in key solvency metrics and/or the adoption of a more appropriate claims reserving approach. Further, the implementation of a comprehensive dividend policy would be positively viewed. Downward rating pressure could emanate from a) a protracted decline in key credit protection metrics; b) failure to complete the property development project within a reasonable timeframe and/or budget (resulting in sustained liquidity strain) and/or c) the adoption of a notably more aggressive stance towards investments.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2008)||Initial rating (Sep/2008)|
|Claims paying ability: A+(TZ)||Claims paying ability: BB-|
|Outlook: Stable||Outlook: Stable|
|Last rating (Sep/2012)||Last rating (Sep/2012)|
|Claims paying ability: A+(TZ)||Claims paying ability: B+|
|Outlook: Stable||Outlook: Stable|
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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.
Tanzania National Reinsurance Corporation 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/s has been disclosed to Tanzania National Reinsurance Corporation Limited with no contestation of the rating.
The information received from Tanzania National Reinsurance Corporation Limited and other reliable third parties to accord the credit rating included 2012 audited annual financial statements (plus four years of comparative numbers), full year 2013 detailed budgeted financial statements, unaudited year to date management accounts to 30 September 2013, retrocession cover notes for 2013, statutory returns for 2011 and 2012, as well as other non-public statistical information.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.