Johannesburg, 30 November 2017 — 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 October 2018.
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:
The rating was affirmed based on Tausi’s very strong risk adjusted capitalisation and strong liquidity. While the insurer’s medium term strategic objectives are aimed at increased growth and diversification, management plans to continue to adhere to strict underwriting guidelines, while targeting lines characterized by fairly low product risk. In GCR’s view earnings capacity may moderate, albeit register within a moderately strong range, supported by the insurer’s underwriting and investment philosophy and demonstrated profitability track record.
Risk adjusted capitalisation remained very strong, supported by limited market risk exposures and relatively well contained insurance risk. While strong growth expectations may result in medium term risk adjusted capitalisation moderation from very strong levels, GCR expects capitalisation to continue to be rating adequate, supported by sound internal capital generation and well contained dividend distributions. Furthermore, maximum net deductibles are viewed to be limited to comparatively conservative levels relative to capital, while the reinsurance panel reflects a sound aggregated level of credit strength.
Key liquidity measures remained strong, as evidenced by the very high claims cash cover and net technical provision cover metrics of 57 months and 1.7x respectively as at FY16 (FY15: 55 months and 1.6x). GCR expects key liquidity measures to remain at strong levels, supported by healthy operating cash flow generation, conservative asset allocation and well contained dividend distributions.
The insurer’s revised 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 (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.
GCR’s assessment factors in a potential softening in earnings capacity, as the insurer enters somewhat competitive product fields to accelerate growth. In this respect, the underwriting margin is likely to register between 4% and 7%, which compares to the review period aggregated margin of 11% (FY16: 14%; FY15: 10%). Similarly, the return on equity is projected at 10% (FY16: 16%; FY15: 15%).
The actuarial function is undertaken by internal resources. Furthermore, the company has an external actuary to test the adequacy of reserves, in line with regulatory 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/last rating (November 2016)|
|Claims paying ability: A(KE)|
|Primary Analyst||Secondary Analyst|
|Yvonne Mujuru||Nyasha Chikwengo|
|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 July 2017
Tausi rating report, 2016
Kenya Short Term Insurance Industry Bulletins, 2014-2016
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 with no contestation of the rating.
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 2016
- Four years of comparative audited numbers
- Unaudited interim results of to 30 June 2017
- Budgeted financial statements for 2017
- The current year reinsurance cover notes
- Statutory returns to 31 December 2016
- The Financial Condition Report to 31 December 2016, and
- Other related documents.
The rating above was solicited by, or on behalf of, the rated client, 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”)|
|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|
|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.