Johannesburg, 9 November 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Tanzania Reinsurance Company Limited of A+(TZ), with the outlook accorded as Stable. 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 Stable. The ratings are valid until September 2016.
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:
Capitalisation is viewed to be strong, supported by a consistent stream of capital injections, cumulatively amounting to TZS15.8bn over the past five years. In this respect, the international solvency margin has strengthened over the past two years (FY14: 66%), subsequent to the FY13 injection. With a further USD3m (TZS6.5bn at current exchange rates) in capital budgeted to be injected over the course of FY15 and FY16, the international solvency margin is expected to measure between 70% and 80% over the rating horizon.
Tan Re’s position as the only domestically registered reinsurer in Tanzania is viewed positively. Whilst the reduction in domestic mandatory cessions has reduced local market participation somewhat, the long term secured cession mandate provides some degree of revenue stability, coupled with good growth in the foreign portfolio.
The underwriting margin registered in positive territory, albeit at modest levels, over the past three years, averaging 3%. This has been a function of the upward trend evidenced in the earned loss ratio over the period. Accordingly, earnings capacity remains supressed amidst ongoing margin pressure at the underwriting level. Note is taken of the medium term strategy to diversify revenue generation across borders, albeit the benefits thereof have yet to feed through to the underwriting account.
The reinsurer’s liquidity profile is viewed to be intermediate, having weakened in FY14 relative to prior years. In this regard, the shift in the investment portfolio towards higher risk assets resulted in the claims cash coverage ratio and cash to technical liabilities ratio registering at 5 months and 0.7x respectively in FY14 (FY13: 8 months and 1x). The completion of construction on the investment property at the start of FY15 is expected to mitigate further cash depletion which, coupled with the USD3m capital injection over the short term, may see liquidity strengthen.
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 6% in FY14 (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 highly 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 awarded a sovereign credit rating.
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. Downward rating pressure could emanate from liquidity metrics continuing to measure at currently weak levels amidst sustained operating cash flow pressure.
|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 (September 2014)||Last rating (September 2014)|
|Claims paying ability: A+(TZ)||Claims paying ability: B+|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Vinay Nagar|
|Sector Head: Insurance Ratings||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Tan Re rating reports (2008-2014)
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 was 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; 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:
- The audited financial statements to December 2014
- Four years of comparative numbers
- Unaudited year to date results to 30 June 2015
- Budgeted financial statements for 2015
- The current year reinsurance/retrocession cover notes
- 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||The items on the balance sheet of the insurer which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets’.|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Capacity||The largest amount of insurance or reinsurance available from a company. In a broader sense, it can refer to the largest amount of insurance or reinsurance available in the marketplace.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss Ratio||The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|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.|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|Retention||The net amount of risk the ceding company keeps for its own account.|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|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.|
|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 more detailed glossary of terms/acronyms used as per GCR insurance glossary, please click here
GCR affirms Tanzania Reinsurance Company Limited’s rating of A+(TZ); Outlook Stable.