Johannesburg, 14 September 2018 — Global Credit Ratings has assigned a national scale claims paying ability rating to Uganda Reinsurance Company Limited of A-(UG); with the outlook accorded as Stable. The rating is valid until August 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Uganda Reinsurance Company Limited (“Uganda Re”) based on the following key criteria:
Uganda Re’s liquidity profile is viewed to be strong, supported by very strong metrics, which are partially offset by majority of funds placed in unrated financial institutions. Key liquidity measures (inclusive of all government securities), remained robust, as evidenced by coverage of monthly claims of 44 months at FY17 (FY16: 41 months), and net technical provision coverage of 1.8x at FY17 (FY16: 1.7x). GCR expects liquidity metrics to remain within a very strong range over the outlook horizon, supported by healthy internal cash generation and conservative asset allocation.
The reinsurer’s capital base amounted to USD6.7m at FY17 (FY16: USD5.6m), supporting healthy risk adjusted capitalisation. Nonetheless, in absolute terms, the scale of the capital base is viewed to be intermediate relative to regional competitors. Over the medium term, risk adjusted capitalisation may moderate, on the back of anticipated increases in underwriting risk, as the company gains traction. Furthermore, maximum net deductibles per risk and event are limited to conservative levels relative to capital; while the retrocession panel aggregated credit strength is viewed to be moderately strong.
Earnings capacity is viewed to be moderately strong, supported by sound investment returns and intermediate underwriting results. In this respect, Uganda Re’s investment returns averaged 14% over the last two years, while the two year underwriting margin equated to 2% (FY17: 1%). In GCR’s view, earnings capacity is likely to register within a moderately strong range, with potential improvements in underwriting performance hinging upon continued scale and operational efficiency enhancements, with earnings supported by healthy investment returns.
The business profile is supported by Uganda Re’s position as the only locally registered reinsurer in Uganda, benefitting from mandatory treaty and facultative cessions. This results in a degree of revenue stability. Nonetheless, the reinsurer’s premium scale is comparatively limited, resulting in some revenue concentration. In GCR’s view, the business profile is likely to remain at similar levels over the outlook horizon.
Upward movement of the rating or outlook could emanate from strong underwriting performance, whilst maintaining solvency and liquidity metrics at strong levels. Conversely, negative rating actions could follow a significant decrease in Uganda Re’s risk-adjusted capitalisation and/or a material deterioration in operating results. Moreover, reductions in liquidity and weakening in earnings capacity may also have a negative bearing on the rating.
NATIONAL SCALE RATINGS HISTORY
|Initial/last rating (September 2018)|
|Claims paying ability: A-(UG)|
|(011) 784 – 1771|
|Sector Head: Insurance Ratings|
|(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
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/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.
Uganda Reinsurance Company 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 Uganda Reinsurance Company Limited.
The information received from Uganda Reinsurance Company Limited and other reliable third parties to accord the credit rating included:
- The 2017 audited annual financial statements 4 years of comparative audited numbers
- Unaudited interim results to 31 March 2018
- Budgeted financial statements for 2018
- 2018 retrocession 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.
|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.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|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.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|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 (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period; usually spanning a time period of twelve to eighteen months.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|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.|
|Statutory||Required by or having to do with law or statute.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
For a more detailed glossary of term, please click here
GCR accords Uganda Reinsurance Company Limited an initial rating of A-(UG); Outlook Stable.