Johannesburg, 19 Oct 2015 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to Alliance Insurance Corporation Limited to 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 Alliance Insurance Corporation Limited (““Alliance””) based on the following key criteria:
The rating upgrade follows a sustained enhancement in earning capacity. To this end, Alliance has demonstrated a positive turnaround in underwriting profitability over the past three years, underpinned by strengthened claims management and contained management expenses. Earnings capacity is further supported by strong investment income. GCR expects profit generation to remain strong going forward. A level of earnings concentration is, however, noted, with motor representing 70% of NWP. This is partially offset by the good (albeit volatile) levels of profitability achieved in this class.
Furthermore, the insurer’’s capital adequacy measures at strong levels, and represents a rating strength. Alliance’’s solvency metrics have consistently registered at high levels over the review period, with management exhibiting a relatively conservative dividend policy. Strong internal capital generation is likely to underpin strong risk-adjusted capital adequacy over the rating horizon.
Alliance reflects a strong competitive position. Despite sustained competitive pressures, Alliance has evidenced resilience in securing growth targets, propelling its position to second largest in FY14. GCR expects the insurer to retain its strong status over the medium term, underpinned by its solid franchise value and established corporate relationships.
Liquidity metrics have displayed strong and stable trends over the review period, and are expected to be upheld going forward. In GCR’’s view, overall asset risk exposure remained moderately conservative, given the strong risk-adjusted capitalisation and liquidity displayed, and is considered manageable in relation to the current loss absorption capacity.
The rating currently matches the national scale ceiling applicable to entities operating within the Tanzanian short term insurance industry. As a result, upward movement of the rating may follow a reassessment of country and industry risk factors. Conversely, a deterioration in liquidity or asset quality, or material weakening in capital adequacy may give rise to negative ratings pressure.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (December 2006)|
|Claims paying ability: A+(TZ)|
Last rating (September 2014)
|Claims paying ability: A+(TZ)|
|Senior Credit Analyst|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH Criteria for Rating Short Term Insurance companies, updated July 2015
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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. Alliance Insurance Corporation 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 Alliance Insurance Corporation Limited with no contestation of the rating. The information received from Alliance Insurance Corporation 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.|