Johannesburg, 06 Oct 2016 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to Reliance Insurance Company (Tanzania) Limited to A+(TZ) from A(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 Reliance Insurance Company (Tanzania) Limited (“Reliance”) based on the following key criteria:
The rating upgrade reflects Reliance’s maintenance of strengthened earnings capacity, due to improved underwriting profitability, while key credit protection metrics remained at strong levels. In this respect, the insurer’s underwriting margin equated to 9.5% in FY15 (four year aggregate underwriting margin equated to 7%). Earnings capacity is further supported by a healthy level of investment income. As such, the four year average operating margin registered at a moderately strong 18%. GCR expects earnings capacity to remain within a moderately strong range over the rating horizon.
Reliance’s risk adjusted capitalisation is viewed to be strong, underpinned by well contained insurance and limited market risk exposure. In this respect, the international solvency margin registered at 68% at FYE15 (FYE14: 56%), and is expected to remain within a healthy range over the rating horizon. Sound internal capital generation, together with fairly conservative dividend distributions, are likely to underpin strong risk adjusted capital adequacy over the rating horizon.
Liquidity metrics are strong, supported by healthy operating cash flow generation. In this respect, cash covered net technical provisions by 1x, while the claims cash cover ratio equated to 22 months at FYE15 (FYE14: 1x and 20 months respectively). Going forward, liquidity metrics are expected to remain at strong levels, supported by conservative asset allocation and sound operating cash flow generation.
Reliance reflects a moderately strong competitive position, underpinned by high brand recognition and well established client relationships. In this respect, the insurer is currently the fourth largest player, with an estimated market share of around 6% of short term industry gross premiums in FY15 (FY14: 7%). Enhanced market share has been targeted going forward, primarily through a more diversified distribution strategy.
The insurer displays a level of earnings concentration. Nonetheless, in GCR’s view, the heavy weighting of motor in the risk base (69%), is partially offset by the low product risk associated with this line of business and the more recent turnaround in performance evidenced.
The reinsurance panel reflects an intermediate aggregate credit profile, while maximum net deductibles are limited to conservative levels relative to capital.
In light of the recent rating action taken, an upgrade of the rating is considered unlikely over the rating horizon. Negative rating actions could follow a substantial decrease in risk-adjusted capitalisation and/or a material deterioration in liquidity metrics. Furthermore, sustained weakening in earnings capacity may also have a negative bearing on the rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (July 2008)|
|Claims paying ability: A(TZ)|
Last rating (October 2015)
|Claims paying ability: A(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
Reliance rating reports, 2008-2015
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.
Reliance 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 Reliance Insurance Company (Tanzania) Limited with no contestation of the rating.
The information received from Reliance Insurance Company (Tanzania) Limited and other reliable third parties to accord the credit rating included:
- Audited financial results up to 31 December 2015
- Four years of comparative numbers
- Unaudited year to date results to 31 August 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.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|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||Funds that can be readily spent or used to meet current obligations.|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Conditions||Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.|
|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.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|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.|
|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.|
|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.|
|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.|
For a detailed glossary of terms click here
GCR upgrades Reliance Insurance Company (Tanzania) Limited’s rating to A+(TZ); Outlook Stable