Johannesburg, 10 September 2018 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Tausi Assurance Company Limited of A(KE), with the outlook accorded as Stable. The rating is valid until September 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Tausi Assurance Company Limited (“Tausi”) based on the following key criteria:
Tausi’s risk adjusted capitalisation remained very strong, supported by limited market risk exposures and relatively well contained insurance risks. Accordingly, the international solvency margin registered at a very high 182% at FY17 (FY16: 163%; review period average: 169%). While strong growth expectations may result in medium term risk adjusted capitalisation moderation, GCR expects capitalisation to register within a very strong range, supported by healthy internal capital generation and well contained dividend distributions. Furthermore, maximum net deductibles are limited to moderate levels relative to capital, while the insurer’s reinsurance panel reflects a strong aggregated level of credit strength
Key liquidity metrics, inclusive of government securities, remained very strong, as evidenced by very high coverage of average monthly claims and net technical provisions of 67 months and 1.9x respectively at FY17 (FY16: 57 months and 1.7x). GCR expects key liquidity measures to remain at very strong levels, supported by healthy operating cash flow generation, conservative asset allocation and well contained dividend distributions. Cognisance is, however, taken of the somewhat elevated single banking counterparty exposure to an unrated related party financial institution.
Medium term earnings capacity is likely to moderate to a moderately strong range, from strong levels historically, as the insurer enters somewhat competitive product fields to accelerate growth. In this respect, GCR’s base case scenario sees the underwriting margin hovering around 5%, compared to the review period aggregated margin of 11% (FY17: 12%; FY16: 14%). Accordingly, the return on equity is projected to moderate from the high levels recorded historically (FY17: 21%; FY16: 16%).
The insurer’s medium term strategic objectives are aimed at improving the business profile by increasing competitive positioning and enhancing channel diversification. In this respect, the insurer expects business volumes to grow to KES1.8bn by FY21 (FY17: KES1.1bn; FY16: KES963m), supported by an expansion of the broker network, strengthening existing client relationships, while developing new products and pursuing quasi-niche lines of business. Management aims to maintain a well-balanced portfolio, while targeting lines of business which are characterized by fairly low product risk and adhering to disciplined underwriting guidelines. As such, the insurer’s ability to successfully attain growth targets, while recording healthy net profitability represents a key rating consideration.
The actuarial function is undertaken internally. Furthermore, the company has an external actuary to test the adequacy of reserves, in line with the Insurance Regulatory Authority requirements.
Earnings capacity registering within a strong range through the expansionary phase may lead to positive rating movement. This would need to be supported by risk adjusted capital adequacy and liquidity metrics measuring at strong levels. Conversely, a downgrade could result from a persistent deterioration in the underwriting result beyond expectations, coupled with material reduction in risk adjusted capitalisation and/or liquidity metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (November 2016)|
|Claims paying ability: A(KE)|
|Last rating (November 2017)|
|Claims paying ability: A(KE)|
|Primary Analyst||Secondary Analyst|
|Yvonne Mujuru||Sylvia Mhlanga|
|Sector Head: Insurance Ratings||Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
Tausi rating reports, 2016-2017
Kenya Short Term Insurance Industry Bulletins, 2014-2017
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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Tausi Assurance 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 rating has been disclosed to Tausi Assurance Company Limited.
The information received from Tausi Assurance Company Limited and other reliable third parties to accord the credit rating included:
- The audited financial results to 31 December 2017
- Four years of comparative audited numbers
- Unaudited interim results to 30 June 2018
- Budgeted financial statements for 2018
- The current year reinsurance cover notes
- Statutory returns to 31 December 2017
- The Financial Condition Report to 31 December 2017, and
- Other related documents.
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.
|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.|
|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.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|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 (“ISR”)||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.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|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.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|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, usually spanning a time horizon of twelve to eighteen months.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|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.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a more detailed glossary of terms please click here
GCR affirms Tausi Assurance Company Limited’s rating of A(KE); Outlook Stable.