Johannesburg, 19th July 2021 – GCR Ratings (“GCR”) has affirmed The Jubilee Insurance Company of Uganda Limited’s (“Jubilee Uganda”) national scale financial strength rating of AAA(UG). The Outlook has been maintained as Stable.
|Rated entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|The Jubilee Insurance Company of Uganda Limited||Financial strength||National||AAA(UG)||Stable Outlook|
The affirmation of Jubilee Uganda’s rating reflects a moderately strong business profile and robust financial profile, supported by excellent earnings generation capacity. While the business profile is expected to moderate to an intermediate range after the unbundling of the medical business, we note potential for the financial profile to be supported within a strong range by a high level of prudency built in industry minimum statutory solvency requirements.
The unbundling of the medical business and regulatory approvals are among the conditions precedent for the purchase of a 66% stake (jointly held by Jubilee Holdings Limited, Aga Khan Fund for Economic Development S.A. and Jubilee Investments Company Limited) by Allianz SE (“Allianz”). A separate medical business was incorporated by 31st December 2020 and management has advised that the processing of the medical licence is at an advanced stage, potentially facilitating the approval of the share purchase transaction over the near term.
Despite the pending regulatory processes, we believe the insurer’s well-buffered credit profile is, to a great degree, resilient to uncertainties from the transaction. Our view is based on commitments to 1) the post-transaction business complying with the minimum statutory adequacy ratio of 200%, which we believe will be fairly aligned with a strong capitalisation assessment under our internal capital model, and 2) the maintenance of a liquid balance sheet. Under these two scenarios, the insurer is expected to retain the current rating with sufficient buffers to cater for severe but plausible stresses. Furthermore, the post-transaction insurer is expected to benefit from parental support, given the resulting majority shareholding by the Allianz Group and the planned assimilation into the group’s ecosystem over a three-year transition period, supported by the partnership with the Jubilee group. We, therefore, expect the business profile to remain supportive of the current rating, despite a slight moderation from the managed separation of the medical business.
The Stable Outlook reflects expectations that the general business will comply with the minimum statutory capital adequacy ratio of 200% and manage the liquidity ratio above 1.5x post transaction. The business profile is likely to reduce from moderately strong to an intermediate range, albeit remaining rating adequate. That said, we expect to update the rating by January 2022 or within a reasonable time after the transaction is completed.
The national scale financial strength rating is at its ceiling. The rating could be downgraded if the insurer’s post-transaction statutory capital adequacy ratio (“CAR”) measures below 200%, or an equivalent GCR CAR, as well as the liquidity coverage ratio registering significantly below 1.5x. In all these cases there should be limited prospects for the metrics to trend in line with expectations within the prospective 18 months period from the transaction completion date.
|Primary analyst||Godfrey Chingono||Deputy Sector Head: Insurance Ratings|
|Johannesburg, ZA||GodfreyC@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MathewP@GCRratings.com||+27 11 784 1771|
Related criteria and research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Insurance Companies, May 2019|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, July 2021|
|GCR Insurance Sector Risk Scores, April 2021|
The Jubilee Insurance Company of Uganda Limited
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Claims paying ability||Initial||National||A+(UG)||Stable Outlook||May 2007|
|Financial strength||Last||National||AAA(UG)||Stable Outlook||July 2020|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Rating Horizon||The rating outlook period|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|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.|
|Retention||The net amount of risk the ceding company keeps for its own account.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Securities||Various instruments used in the capital market to raise funds.|
|Security||One of various instruments used in the capital market to raise funds.|
|Senior||A security that has a higher repayment priority than junior securities.|
|Short Term||Current; ordinarily less than one year.|
|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.|
|Upgrade||The rating has been raised on its specific scale.|
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating is based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating is an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to the rated entity. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The information received from the rated entity and other reliable third parties to accord the credit rating included:
- Composite audited financial results as at 31 December 2020;
- Composite four years of comparative audited financial statements to 31 December
- Separate proforma financial statements and budgets for 2021
- Full year composite budgeted financial statements for 2021;
- Unaudited composite interim results to 31 March 2021;
- Reinsurance cover notes for 2021; and
- Other relevant documents.