Johannesburg, 08 Oct 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Jubilee Insurance Company of Tanzania Limited of A+(TZ); with the outlook accorded as Stable. The rating(s) are valid until 9/2014.
Global Credit Ratings has accorded the above credit rating(s) on ICEA LION General Insurance Company (Tanzania) Limited based on the following key criteria:
Jubilee Insurance Company of Tanzania Limited (“Jubilee”) is a 51% owned subsidiary of Jubilee Holdings Limited (“Jubilee Holdings”). Other key shareholders are the Aga Khan Fund for Economic Development (15%) and the National Social Security Fund (10%). Jubilee Holdings is listed on the Nairobi, Uganda and Dar es Salaam Securities Exchanges, reflecting a market capitalisation of US$135.7m in September 2013 on the major Kenyan bourse.
The rating recognises Jubilee’s established position as a leading player in the domestic non-life insurance market (13% market share), underpinned by a strong franchise value and operational support at group level (which provides a suitable basis for the participation in large corporate domestic risks). Further, the sustained conservative investment stance and the absolute size of the investment portfolio (exceeding consolidated FYE12 capital more than twofold) are favourably considered, with key liquidity metrics reported at comfortable levels in F12. Going forward, no material change to the investment strategy is envisaged. A drawback, however, is the protracted decline in international solvency in recent years to a review period low of 53% in F12, with premium growth outstripping capital appreciation. While solvency is forecast to recover to 61% in F13, this is to a large extent underpinned by asset revaluations, highlighting the insurer’s limited earnings capacity. Although the insurer continues to remain profitable at the underwriting line, margin levels have softened notably of late, due to increasing claims pressure. Further, contributions of the life segment to overall earnings remain negligible, as sustained delivery cost pressure weighs down on the operating result. Whilst the panel of participants on the insurer’s treaty reinsurance programme is generally considered sound, net deductibles on XoL per risk are moderately elevated relative to capital (at 1.8% in F12), implying increased capital risk. Further, no CAT cover is currently in place for life risks, exposing the insurer to some degree of accumulation risk. Note is also taken of the continued reliance on the insurer’s two largest brokers in terms of business generation, whilst the gearing of the risk base towards motor (at 54% in F12) implies increased operational risk, particularly in context of the volatile underwriting trend of this line of business.
An upward adjustment of the rating could develop pending a notable and protracted improvement in the solvency position, paired with the attainment of sustained sound underwriting margins. Conversely, downward rating pressure could emanate from a) failure to address the persistent decline in solvency (undermined by the adoption of a more aggressive dividend policy); b) a notable deterioration in underwriting profitability; and/or c) the adoption of an increasingly aggressive investment strategy (and subsequent weakening of key liquidity metrics).
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (May/2007)|
|Claims paying ability: A+(TZ)|
|Last rating (Sep/2012)|
|Claims paying ability: A+(TZ)|
|Rating watch: Yes|
|+27 11 784 1771|
|Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
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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.
Jubilee Insurance Company of 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/s has been disclosed to Jubilee Insurance Company of Tanzania Limited with no contestation of the rating.
The information received from Jubilee Insurance Company of Tanzania Limited and other reliable third parties to accord the credit rating included 2012 audited annual financial statements (plus four years of comparative numbers), full year 2013 detailed budgeted financial statements, unaudited year to date management accounts to 31 July 2013, 2013 reinsurance cover notes, the actuarial valuation statement as at year-end 2012, statutory returns for 2011 and 2012, as well as other non-public statistical information.