Announcements

GCR affirms The Heritage Insurance Company Tanzania Ltd’s rating of AA-(TZ); Outlook Stable

Johannesburg, 5 Oct 2015 — 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 2016.

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’s capital adequacy measures at very strong levels and represents a key rating strength. The company’s solvency metrics have continuously registered at high and stable levels over the review period. GCR expects capital strength to be upheld over the rating horizon, facilitated by retained earnings and consistency in the risk base.

The insurer’s corporate profile is buoyed by its position as one of the leading players in the Tanzanian short term insurance market. Despite a recent reduction in market share, 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 have displayed a consistent upward trend over the review period, and measured at very strong levels in FY14. GCR expects liquidity metrics to remain within a strong range over the rating horizon, supported by the conservative investment strategy.

Heritage Tanzania displays a moderately conservative level of asset risk exposure, with risky assets corresponding to approximately 50% of FY14 capital. This is expected to reduce going forward, pending repayment of the final instalment of a related party balance in FY15.

The insurer’s underwriting profitability is viewed to be limited, with underwriting losses reported over three of the last five years. With core profit generation supressed, investments inflows have notably underpinned earnings capacity. The rising total expense ratio presents risk to profitability over the medium term in the absence of translating its notable scale advantage into material efficiency gains.

Risk premiums are fairly well diversified with 3 lines of business contributing material volumes to GWP. This is, however, partially offset by the poor performance track record of certain key business lines.

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 a reassessment 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 business profile (by way of market share and earnings) may result in negative ratings pressure.

NATIONAL SCALE RATINGS HISTORY

    
     
Initial rating (June 2007)    
Claims paying ability: AA-(TZ)    
Outlook: Stable    
     
Last rating (September 2014)    
Claims paying ability: AA-(TZ)    
Outlook: Stable    
     

ANALYTICAL CONTACTS

Primary Analyst    
Sheri Few    
Senior Credit Analyst    
(011) 784-1771    
few@globalratings.net    
     
Committee Chairperson    
Marc Chadwick    
Sector Head: Insurance Ratings    
(011) 784-1771    
chadwick@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2015

Heritage Tanzania rating reports, 2007-2014

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 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 2014
  • 4 years of comparative numbers
  • Unaudited year to date results to June 2015
  • Budgeted financial statements for 2015
  • 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

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 detailed glossary of terms utilised please click here

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