GCR Affirms Tangerine General Insurance Financial Strength Rating of A-(NG)
GCR Ratings has affirmed Tangerine General Insurance Limited’s national scale financial strength rating of A-(NG), with a stable outlook.
In its latest rating note, GCR said Tangerine General Insurance Limited and its subsidiary, Total Health Trust Limited (THT), collectively referred to as the sub-group within the wider Tangerine Group (the group), accounting for approximately 33% of the group’s revenue and total assets as of 31 December 2023.
In this regard, the financial strength rating of Tangerine General reflects the strengths and weaknesses of the sub-group but capped at Tangerine Group’s anchor credit evaluator, GCR stated.
The rating affirmation reflects Tangerine General’s sound liquidity and strong (though declining) capital, balanced against a modest competitive position and a high-cost structure that limits earnings progression.
“Tangerine General is a mid-tier non-life insurer with an established track record spanning over seven decades in the Nigerian insurance industry.
Tangerine General’s competitive profile and business diversification improved in the last two years, according to the rating note.
The improvement followed the acquisition of 60% equity stake in Total Health Trust Limited (THT), a health insurance provider in April 2022.
In 2023, the sub-group’s insurance revenue grew by 16.7% to N15.9 billion or USD17.7 million, GCR said.
Analysts said the non-life insurance business registering a stronger growth of 30.8% in 2023 on the back of higher underwriting activities within the fire, general accident, motor, marine and engineering line of business.
Additionally, the business mix is considered well-diversified, with four lines of business contributing materially to the premium base in 2023, according to the rating note.
Looking ahead, GCR said the sub-group’s competitive position could be supported by sustained retail penetration drive, digital transformation initiatives and by leveraging the cross-selling opportunities within the Tangerine ecosystem.
GCR stated that Tangerine General’s weak earning profile is a major rating negative, reflecting the sustained underwriting deficit.
The insurer’s underwriting performance is constrained by high-cost structure and elevated business acquisition expenses, attributed to the insurer’s significant reliance on brokers at about 75% in 2023.
Consequently, the combined ratio registered at an elevated 117.1% in 2023 from 112.9% in 2022.
“Our expectation is that the rising operating costs and acquisition associated costs will keep the earnings profile of the insurer pressured over the rating horizon.
“However, ongoing initiatives being implemented to support retail is expected to improve earnings.
“More so, an improved profitability position of the healthcare subsidiary over the next 12-18 months could positively impact our assessment over the rating horizon”, GCR said in the rating note.
The rating agency noted that Tangerine liquidity is a rating positive, supported by the sound GCR liquidity coverage of 1.6x in 2023 up from 1.4x in 2022.
The sub-group’s assets allocation is considered somewhat conservative with 31.1% of the investment portfolio held in cash and near cash in 2023 relative to 39.7% in 2022.
“Our expectation over the next 12-18 months is that the insurer’s liquidity coverage will register within similar level, while maintaining its existing investment allocation strategy which prioritises liquid investments”.
In the rating note, GCR said Tangerine General’s risk adjusted capitalisation remains strong despite the downward trend in the capital adequacy ratio in the last two years stemming from a considerable increase in aggregate risk exposures following the acquisition of the health insurance business.
As a result, the GCR capital adequacy ratio (CAR) moderated to 2.0x in 2023. From the regulatory perspective, the insurer’s solvency margin of 3.8x in 2023 is well above the regulatory minimum of 1x.
Looking ahead, the GCR CAR is expected to remain above 1.8x over rating horizon, although susceptible to a sustained faster growth in aggregate risk exposures relative to internal capital generation.
The stable outlook reflects GCR analysts expectation that Tangerine General will sustain its market position over the next 12-18 months.
“While earnings may remain pressured to rising operating costs, the insurer’s risk adjusted capitalisation, and liquidity will continue to support its overall credit profile over the rating horizon” #GCR Affirms Tangerine General Insurance Financial Strength Rating of A-(NG)#
