Announcements Insurance Rating Alerts

GCR affirms Tausi Assurance Company Limited’s national scale financial strength rating of A(KE); Positive Outlook

Rating Action

Johannesburg, 23 October 2019 – GCR Ratings (“GCR”) has affirmed Tausi Assurance Company Limited’s (“Tausi”) national scale financial strength (formerly claims paying ability) rating of A(KE), with a Positive Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Tausi Assurance Company Limited Financial strength National A(KE) Positive Outlook

GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for Tausi was placed ‘Under Criteria Observation’. GCR finalised the review for Tausi under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for Tausi has been reviewed in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.

Rating Rationale

Tausi’s national scale financial strength rating reflects the entity’s strong financial profile supported by robust risk adjusted capitalisation and sound earnings, albeit offset by a comparatively weak business profile. Furthermore, liquidity strengthened in FY18, with the possibility of a sustained trend underpinning the Positive outlook.

Tausi’s very strong risk adjusted capitalisation contributes positively to the rating. This is largely due to strong internal capital generation, as well as limited market and insurance risks exposures. In this regard, risk adjusted capitalisation has been managed within a high range, with the entity registering a capital adequacy ratio of 231% at FY18 (FY17: 209%) under the regulator’s Risk Based Solvency (“RBS”) framework. The evidenced stability in the risk content of the operating model, coupled with consistent internal capital generation is expected to support risk adjusted capitalisation within the current range.

Furthermore, liquidity strengthened to register within a moderately strong range in FY18, supported by strong cash flow generation and stability in concomitant obligations. As such, coverage of net technical liabilities by cash and stressed financial assets equated to a higher 2.3x at FY18 (FY17: 2.0x), while operational cash coverage registered at close to 30 months (FY17: 26 months). While GCR notes the stability of net technical reserves over the historical period, against a growing risk base, comfort is drawn from the certification of reserves by an independent actuary. In this regard, the sustenance of relative net technical reserves stability, coupled with steady operational cash generation has potential to improve liquidity to a strong range over the rating horizon.

Tausi’s earnings are assessed as healthy, attributed to Tausi’s competitive net incurred loss ratio. In this regard, the review period average underwriting margin and return on revenue equated to 13% and 29% (FY18: 20% and 32%) respectively, on the back of a review period net incurred loss ratio of 37% (FY18: 27%). GCR expects the insurer to maintain earnings within the current average range over the rating horizon, noting industry dynamics that could curtail the review year improvement.

Tausi’s business profile negatively impacts the rating, reflecting a comparatively weak market position and limited premium diversification. Accordingly, Tausi accounted for a limited market share of around 1% of the Kenyan short term insurance market over the review period. Premium diversification is relatively limited, with two lines of business contributing materially to revenue, albeit with moderately high policyholder diversification viewed positively.

Outlook Statement

The Positive Outlook reflects potential for upward rating movement should the insurer sustain liquidity at strengthened levels, in light of similar credit strengths in capitalisation and earnings.

Rating Triggers

Negative rating action would follow weakness and volatility in the level of earnings.

Analytical Contacts

Primary analyst Vinay Nagar Senior Analyst
Johannesburg, ZA Vinay@GCRratings.com +27 11 784 1771
Secondary analyst Linda Matavire Associate Analyst
Johannesburg, ZA LindaM@GCRratings.com +27 11 784 1771
Committee chair Godfrey Chingono Deputy Sector Head: Insurance Rating
Johannesburg, ZA GodfreyC@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Insurance Companies, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, June 2019
GCR Insurance Sector Risk Scores, July 2019

Ratings History

Rating class Review Rating scale Rating Outlook/Watch Date
Claims paying ability Initial National A(KE) Stable November 2016
Last National A(KE) Stable September 2018

Risk Score Summary

Risk scores Tausi Assurance Company Limited
Operating environment 9.25
Country risk score 4.50
Sector risk score 4.75
Business profile (3.25)
Competitive position (2.50)
Premium diversification (0.75)
Management and governance 0.00
Financial profile 3.75
Earnings 1.25
Capitalisation 2.00
Liquidity 0.50
Comparative profile 0.00
Group support 0.00
Peer analysis 0.00
Total Score 9.75

Glossary

Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
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.
Statutory Required by or having to do with law or statute.
Technical Liabilities The sum of Net UPR and Net OCR IBNR.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
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.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
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.
Statutory Required by or having to do with law or statute.
Technical Liabilities The sum of Net UPR and Net OCR IBNR.
Underwriting Margin Measures efficiency of underwriting and expense management processes.
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.

SALIENT POINTS OF ACCORDED RATING

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.

The credit rating has been disclosed to Tausi Assurance Company Limited. 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.

Tausi Assurance Company Limited participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Tausi Assurance Company Limited and other reliable third parties to accord the credit rating included:

  • The audited financial results up to 31 December 2018
  • Four years of comparative audited numbers to 31 December
  • Unaudited interim results up to 30 June 2019
  • Budgeted financial statements to 31 December 2019
  • Other related documents.
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