Johannesburg, 1 October 2018 — Global Credit Ratings has today downgraded the national scale claims paying ability rating assigned to ICEA LION General Insurance Company (Tanzania) Limited to A- (TZ) from A(TZ), with the outlook accorded as Negative. The rating is valid until September 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to ICEA LION General Insurance Company (Tanzania) Limited (“ICEA Lion Tanzania”) based on the following factors:
ICEA Lion Tanzania’s rating was downgraded based on persistent earnings strain over the last two years, stemming from very weak underwriting performance, offsetting sound investment returns. In this respect, the two year underwriting margin equated to -16% (FY17: -22%), compared to -5% in the prior three year cycle, while the investment return averaged 11% over the review period. The Negative outlook factors in the potential for earnings pressure to persist, given the challenging operating environment, and a shift in competitive dynamics.
The insurer’s competitiveness is viewed to have moderated, stemming from a new regulation that was passed stating that all government related business (including business from parastatals) should be underwritten by the National Insurance Company Tanzania. As such, ICEA Lion Tanzania’s share of total short term insurance industry premiums equated to a lower 1% in FY17 (FY16: 4%), and is expected to remain relatively limited over the outlook horizon. While the insurer expects to shift strategic focus to retail business and personal lines (compared to high value risks which characterised the business model previously), GCR notes the potential for a certain degree of execution risk. As such, the ability of the insurer to successfully attain strategic objectives, resulting in enhanced earnings diversification and scale represents a rating consideration over the medium term.
Risk adjusted capitalisation registered within a very strong range, underpinned by a reduction in insurance risk (stemming from negative premium growth). As such, the international solvency margin equated to a review period high of 217% at FY17 (FY16: 154%; review period average: 154%). Nonetheless, risk adjusted capitalisation may moderate over the rating horizon on the back of envisaged earnings strain. The maximum net deductible per risk and event has been maintained at a very conservative level, while reinsurance arrangements are placed with fairly well rated counterparties.
The insurer’s liquidity profile is viewed to be strong supported by very strong liquidity metrics, which are partially offset by high exposure to unrated financial institutions. Key liquidity metrics remained robust, as evidenced by cash coverage of average monthly claims of 80 months (FY16: 44 months), while coverage of net technical provisions equated to 1.4x at FY17 (FY16: 1.6x). GCR expects liquidity metrics to remain within a similar range over the outlook horizon, supported by conservative asset allocation.
The rating may be downgraded following sustained weak net profitability and capitalisation reducing materially. Furthermore, the business profile remaining within a weak range may lead to negative ratings pressure. Conversely, credit positives may be derived from earnings strengthening to historical levels, while capitalisation and liquidity register within strong.
|
NATIONAL SCALE RATINGS HISTORY |
| Initial rating (August 2006) |
| Claims paying ability: A(TZ) |
| Outlook: Stable |
| Last rating (September 2017) |
| Claims paying ability: A(TZ) |
| Outlook: Negative |
ANALYTICAL CONTACTS
| Primary Analyst | Secondary Analyst |
| Yvonne Mujuru | Linda Matavire |
| Sector Head: Insurance Ratings | Junior Credit Analyst |
| (011) 784 – 1771 | (011) 784 – 1771 |
| ymujuru@globalratings.net | lindam@globalratings.net |
| Committee Chairperson |
| Vinay Nagar |
| Senior Credit Analyst |
| (011) 784 – 1771 |
| vinay@globalratings.net |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
ICEA LION General Insurance Company (Tanzania) Limited rating announcements, 2006-2017
RATING LIMITATIONS AND DISCLAIM4RS
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/RATING-SCALES-DEFINITIONS. 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.
ICEA LION General 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 ICEA LION General Insurance Company (Tanzania) Limited.
The information received from ICEA LION General Insurance Company (Tanzania) Limited and other reliable third parties to accord the credit rating included:
- The 2017 audited annual financial statements Four years of comparative audited numbers
- Unaudited interim results to 30 June 2018
- Budgeted financial statements for 2018
- 2018 reinsurance cover notes
- 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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
| 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. |
| Cash | Funds that can be readily spent or used to meet current obligations. |
| Cede | To transfer all or part of a risk written by an insurer (the cedant or primary company) to a reinsurer. |
| Claim | A request for payment of a loss, which may come under the terms of an insurance contract. |
| Contract | An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the contract. |
| Coverage | The scope of the protection provided under a contract of insurance. |
| 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. |
| 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. |
| 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. |
| Personal Lines | Types of insurance, such as auto or home insurance, for individuals or families rather than for businesses or organisations. |
| Premium | The price of insurance protection for a specified risk for a specified period of time. |
| 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. |
| Underwriting Margin | Measures efficiency of underwriting and expense management processes. |
| Upgrade | The assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade. |
| Claim | A request for payment of a loss, which may come under the terms of an insurance contract. |
| 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. |
For a more detailed glossary of term, please click here
GCR downgrades ICEA LION General Insurance Company (Tanzania) Limited’s rating to A-(TZ); Outlook Negative.
