Johannesburg, 29 Oct 2014 — Global Credit Ratings has today upgraded the national financial strength rating assigned to African Life Assurance (Tanzania) Limited to AA-(TZ) from A+(TZ). The rating outlook was correspondingly adjusted from “Positive” to “Stable”. The rating(s) are valid until 09/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to African Life Assurance (Tanzania) Limited (“African Life”) based on the following key criteria:
African Life’s entrenched position as the unrivalled market leader in the domestic life assurance arena is supported by a strong double digit premium growth trajectory for most years under review. The corporate profile is further enhanced by its affiliation with the Sanlam Group as its majority shareholder, providing both technical and operational support on an ongoing basis. Further rating uplift is derived from the robust operating performance displayed, with consecutive healthy net surpluses posted over the review period. This is underpinned by a competitive claims experience and a well contained operating cost structure, with the realisation of scale benefits driving a greater degree of cost absorption of late. Whilst profitability is anticipated to remain sound, a greater degree of market maturation and evolving claiming patterns are likely to give rise to increased margin pressure over the medium to long term.
Further, a high degree of profit retention has seen capital reserves accumulate at a rate exceeding most risk proxies, thus supporting a consistent improvement in key solvency metrics at comfortable levels. Attesting to this, risk adjusted capitalisation remains well in excess of a conservative internal target ratio, while the Embedded Value and the Value of New Business (as per an independent actuarial assessment at FYE13) have been maintained at healthy levels. Further, risk management disciplines are notably enhanced by the deployment of an enterprise risk management framework developed at group level, and are viewed to support a high degree of financial stability. The size of the investment portfolio and relative conservatism of associated allocations are supportive of a healthy degree of liquidity and an adequate asset-liability matching. Going forward, no material change in the investment strategy is envisaged.
Nonetheless, an increased degree of risk to revenue prevails amidst a continued reliance on credit life risk and limited partner diversification associated therewith (single largest: 32% of GWP). This, however, has to be viewed in context of the prevailing low level of market development, while long standing relationships with most of these counterparties serve as a risk mitigant.
In view of the rating upgrade from A+(TZ) to AA-(TZ), the assurer’s financial strength rating currently matches the highest rating accorded in Tanzania. In the absence of a revised view on key industry risk characteristics by GCR, this renders a further rating uplift unlikely over the short to medium term. Conversely, downward rating pressure could materialise on the back of a prolonged deterioration in operating performance, coupled with a sustained weakening of capital and solvency metrics well below historic norms. Further, a sustained asset-liability mismatch (thus elevating conversion risk and undermining balance sheet quality) could impact adversely on the rating.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (Apr/2010)
Financial strength: A+(TZ)
Last rating (Sep/2013)
Financial strength: A+(TZ)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Life Assurance and Reassurance Companies, July 2014
African Life Assurance (Tanzania) Limited rating reports 2010-2013
RATING LIMITATIONS AND DISCLAIMERS
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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.
African Life Assurance (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/s has been disclosed to African Life Assurance (Tanzania) Limited with no contestation of the rating.
The information received from African Life Assurance (Tanzania) Limited and other reliable third parties to accord the credit rating(s) included 2013 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year 2014 detailed budgeted financial statements, most recent year to date management accounts to 31 May 2014, 2014 reinsurance cover notes, actuarial valuation statements as at FYE13, as well as other non-public statistical information.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
GCR upgrades African Life Assurance (Tanzania) Limited’s rating to AA-(TZ); Outlook Stable.