Johannesburg, 08 July 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Goldstar Insurance Company Limited of A+(UG), with the outlook accorded as Stable. The rating is valid until June 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Goldstar Insurance Company Limited (“Goldstar”) based on the following key criteria:
Goldstar reflects extremely strong capitalisation. The insurer has evidenced a robust track record of capital generation throughout the review period, with capital rising to UGX32.5bn at FYE15 (FYE14: UGX26.5bn). Accordingly, the insurer recorded an extremely strong international solvency margin of 363%, with similar strength in risk adjusted capitalisation projected by FYE16.
The insurer’s earnings capacity is viewed to be extremely strong, underpinned by an exceptionally high and stable level of technical profitability (five year average technical margin: 101%). In turn, this has been a function of the low and stable net loss ratio (five year average: 38%), coupled with the insurer’s favourable net commission recovery ratio (five year average: 37%). Accordingly, the underwriting margin has remained robust (FY15: 45%; five year average: 40%), and this is expected to persist going forward.
Goldstar reflects a very strong liquidity profile. Claims cash coverage registered at 86 months and technical provision cover equated to 4.3x at FYE15. Cognisance is taken of the significant cash reserve counterparty exposure to Crane Bank Limited (a related party), which represents a rating constraint. The insurer’s very strong cash generation capacity is expected to be maintained going forward.
Goldstar’s business profile is moderately strong, and this is expected to remain stable over the rating horizon. This is supported by a market share of 5.9%, and a relative market share of 1.2x. The insurer reflects an established market position, with a somewhat diversified business mix.
The maximum net deductible per risk and event was maintained at a very conservative level. Reinsurance arrangements are placed with fairly well rated counterparties, containing reinsurance risk at a very low level.
Upward movement of the rating or outlook could develop if the insurer notably reduces the banking counterparty exposure to a more balanced level, while maintaining risk adjusted capitalisation, liquidity metrics and profitability at very strong levels. Furthermore, an enhancement in the business profile (by way of increased market share and earnings diversification) may result in positive rating movement. Conversely, downward rating pressure could arise from a material and sustained reduction in capitalisation, liquidity and/or performance.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (May 2007)|
|Claims paying ability: A(UG)|
|Last rating (September 2015)|
|Claims paying ability: A+(UG)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Zwivhuya Mukosi|
|Sector Head: Insurance Ratings||Junior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Goldstar Uganda rating reports, 2007-2015
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.
Goldstar Insurance Company Uganda 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 Goldstar Insurance Uganda Limited with no contestation of the rating.
The information received from Goldstar Insurance Company Uganda Limited and other reliable third parties to accord the credit rating included:
- Audited financial results as per 31 December 2015
- five years of comparative audited numbers
- Unaudited interim results as per 31 March 2016
- Budgeted financial statements for 2016
- Financial Condition Report 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.|
For a detailed glossary of terms please click here
GCR affirms Goldstar Insurance Company Limited’s rating at A+(UG); Stable Outlook.