Johannesburg, 06 Oct 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to The Heritage Insurance Company Tanzania Limited of AA-(TZ): with the outlook accorded as Stable. The rating is valid until September 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to The Heritage Insurance Company Tanzania Limited (“Heritage Tanzania”) based on the following key criteria:
Heritage Tanzania reflects strong capitalisation, underpinned by healthy internal capital generation, catering for the quantum of insurance and market risk exposures. In this respect, the insurer’s international solvency margin equated to a high 120% at FYE15 (FYE: 130%). Sound internal capital generation is likely to underpin strong risk adjusted capitalisation.
The insurer’s competitive position is buoyed by its position as one of the leading players in the Tanzanian short term insurance market. GCR expects Heritage Tanzania to defend its strong competitive position over the rating horizon, supported by its well-established brand, entrenched client-facing relationships and strong regional group franchise value.
Liquidity metrics are viewed to be very strong and continue to represent a key rating strength. In this respect, cash cover of net technical liabilities and claims cash coverage remained strong at 1.4x and 31 months respectively at FYE15 (FYE14: 1.2x; 32 months). Liquidity metrics are likely to remain within a very strong range, supported by conservative asset allocation and sound operating cash flow generation.
Heritage Tanzania displays a conservative level of asset risk exposure, further supported by the repayment of the final instalment of a related party balance in FY15. The insurer’s risky assets correspond to approximately 50% of FYE15 capital. This is expected to remain stable over the rating horizon.
Reinsurance agreements limit maximum deductibles to conservative levels against capital, supported by sound aggregate counterparty credit strength.
Sound earnings capacity is largely a function of healthy investment income (given the large investment portfolio) offsetting intermediate underwriting profitability. In this respect, the operating margin equated to a high 23% in FY15 (5-year average: 22%). Going forward, management expects earnings capacity to strengthen, underpinned by improved underwriting profitability. In GCR’s view, the ability of the insurer to sustainably improve cost efficiencies may result in underwriting profitability registering at sound levels.
Risk premiums are heavily reliant on motor, albeit with two other lines of business gradually offering diversification benefits. Management expects the risk base to gradually become fairly well diversified over the medium term
The rating currently matches the national scale ceiling applicable to entities operating within the Tanzanian short term industry. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. The rating may be downgraded if the insurer were to evidence a reduction in risk adjusted capital adequacy, and/or a weakening in liquidity metrics. Furthermore, sustained weakening in the business profile (by way of market share and earnings) may result in negative rating pressure.
NATIONAL SCALE RATINGS HISTORY
|Initial rating (June 2007)|
|Claims paying ability: AA-(TZ)|
|Last rating (September 2015)|
|Claims paying ability: AA-(TZ)|
|Senior Credit Analyst|
|Junior Credit Analyst|
Senior Credit Analyst
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2016
Heritage Tanzania rating reports, 2007-2015
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 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.
The Heritage Insurance Company Tanzania 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 The Heritage Insurance Company Tanzania Limited with no contestation of the rating.
The information received from The Heritage Insurance Company Tanzania Limited and other reliable third parties to accord the credit rating included:
- Audited financial results as at 31 December 2015
- 4 years of comparative numbers
- Unaudited year to date results to June 2016
- Budgeted financial statements for 2016
- The current year reinsurance cover notes
- Other non-public statistical information
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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Agency||An insurance sales office which is directed by an agent, manager, independent agent, or company manager.|
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Benefits||Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.|
|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 Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Conditions||Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Deductible||The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Downgrade||The assignment of a lower credit rating to an insurer by a credit rating agency. Opposite of upgrade.|
|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.|
|Financial Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|Industry Risk||The risk that defaults will arise in an industry because of factors specifically affecting that industry.|
|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.|
|Interest||Money paid for the use of money.|
|Investment Income||The income generated by a company’s portfolio of investments.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Operating Margin||Measures the efficiency of profit generation from investments and underwriting.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Rating Horizon||The rating outlook period|
|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.|
|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.|
|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 detailed glossary of terms please click here
GCR affirms The Heritage Insurance Company Tanzania Limited’s rating of AA-(TZ); Outlook Stable.