Announcements

GCR affirms Tanzania Reinsurance Company Limited’s rating of A+(TZ); Outlook Negative.

Johannesburg, 5 October 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Tanzania Reinsurance Company Limited of A+(TZ), with the rating outlook accorded as Negative. Furthermore, Global Credit Ratings has affirmed the international scale claims paying ability rating assigned to Tanzania Reinsurance Company Limited of B+, with the outlook accorded as Negative. The ratings are valid until September 2017.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Tanzania Reinsurance Company Limited (“Tan Re”) based on the following key criteria:

The negative outlook reflects Tan Re’s weakened levels of liquidity, stemming from increased development costs, and compounded by premium collection challenges. As such, cash and equivalents contracted by 46% to TZS8.1bn at FYE15 (FYE14: TZS15.1bn) from TZS29bn at the start of the review period. In this respect, key liquidity metrics continued on a downward trend. Cash coverage of average monthly claims and net technical provisions equated to a low 3 months and 0.4x respectively at FYE15, also noting the comparatively low levels of reserves, compared to 15 months and 1.3x at the start of the review period. Accordingly, liquidity metrics may remain at weakened levels over the rating horizon, barring remedial measures.

Risk adjusted capitalisation remained strong over the review period, underpinned by the sizeable capital base catering for the quantum of insurance and market risk exposures. In this respect, the international solvency margin equated to a high 79% at FYE15 (FYE14: 66%). Capital growth has been underpinned by consistent capital injections (cumulatively amounting to TZS16bn), with a further TZS4bn expected by FYE17. Accordingly, risk adjusted capital adequacy is likely to be maintained at a strong level over the rating horizon.

Tan Re’s position as the only domestically registered reinsurer in Tanzania is viewed positively. The reinsurer continues to benefit from mandatory policy and treaty cessions from the local market, which provides a degree of revenue stability from the reinsurer’s core market.

Earnings capacity is viewed to be moderately strong, as a well contained cost base, and a fairly stable loss experience has translated into moderate levels of underwriting profitability over the review period. Going forward, profitability metrics are expected to mirror the review period trend, supportive of a sound earnings profile.

Tan Re is viewed to reflect very low reserving metrics relative to both the cedant market, as well as regional norms. In this respect, the ratio of net outstanding claims reserves to NWP amounted to a low 5% in FY15 (in line with the review period average). While the reinsurer plans to address technical items (including reserving sufficiency) through the utilisation of independent actuarial consultants, which may serve to alleviate reserving risk over time, the ongoing low metric continues to represent a source of capital and liquidity risk.

The reinsurer’s treaty retrocession programme is predominantly placed with well rated entities, whilst net deductibles on XoL per risk and event remain reasonably contained relative to capital.

The international rating remains constrained by the fact that all of the reinsurer’s assets are domiciled in Tanzania, which implies concentrated sovereign risk. Tanzania has not been accorded a sovereign credit rating.

Downward rating pressure could emanate from liquidity metrics continuing to measure at currently weak levels amidst sustained operating cash flow pressure. Positive rating action may develop on the back of a sustained and material improvement in liquidity metrics, accompanied by the maintenance of risk adjusted capitalisation at strong levels. Furthermore, a notable increase in reserving metrics, or an independent valuation of technical reserves to address the low reserving levels, would be viewed favourably. This must be accompanied by sustained enhanced earnings capacity.

NATIONAL SCALE RATINGS HISTORY   INTERNATIONAL SCALE RATINGS HISTORY
     
Initial rating (September 2008)   Initial rating (September 2008)
Claims paying ability: A+(TZ)   Claims paying ability: BB-
Outlook: Stable   Outlook: Stable
     
Last rating (October 2015)   Last rating (October 2015)
Claims paying ability: A+(TZ)   Claims paying ability: B+
Outlook: Stable   Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst   Committee Chairperson
Vinay Nagar   Yvonne Masiku
Credit Analyst   Senior Credit Analyst
(011) 784-1771   (011) 784-1771
vinay@globalratings.net   ymasiku@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2016

Criteria for Rating Long Term Insurance Companies, updated July 2016

Tan Re rating reports, 2008-2015

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 ratings were influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Tanzania Reinsurance Company 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 ratings have been disclosed to Tanzania Reinsurance Company Limited with no contestation of the ratings.

The information received from Tanzania Reinsurance Company Limited and other reliable third parties to accord the credit ratings included:

  • Audited financial results to 31 December 2015
  • Four years of comparative numbers
  • Unaudited interim results to 30 June 2016
  • Budgeted financial statements for 2016
  • Other related documents

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.


GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY

Assets A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
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.
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.
Cession Amount of the insurance ceded to a reinsurer by the original insuring company (cedant) in a reinsurance transaction.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
Contract An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the contract.
Coverage The scope of the protection provided under a contract of insurance.
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.
Deductible The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.
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.
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.
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.
International Solvency Margin Measures the ability to cover current year’s written premiums using shareholder’s funds.
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.
Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
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.
Outstanding Claims Reserve A technical reserve of an insurance company established to provide for the future liability for claims which have occurred and have been reported but which have not yet been settled.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Reserve (1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.
Retrocession The transaction whereby a reinsurer cedes to another reinsurer all or part of the reinsurance it has previously assumed.
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.
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.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
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.
   

For a detailed glossary of terms, please click here

GCR affirms Tanzania Reinsurance Company Limited’s rating of A+(TZ); Outlook Negative.

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