Announcements

GCR affirms The Jubilee Insurance Company Kenya Limited’s rating at AA-(KE); Stable Outlook.

Johannesburg, 01 July 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating of The Jubilee Insurance Company Kenya Limited at AA-(KE) , 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 The Jubilee Insurance Company Kenya Limited (“Jubilee Kenya”) based on the following key criteria:

Jubilee Kenya derives significant rating support from its market leadership position, evidencing a market share of 11% in the Kenyan short term insurance market and 15% in long term insurance. This stems from an expansive product distribution infrastructure, high franchise value and strong product support networks. Furthermore, comparative performance has exhibited consistent relative strengths, with the insurer’s substantial scale continuing to underpin competitive operating metrics relative to peers.

Earnings capacity is viewed to be strong, with the insurer posting a robust five year underwriting margin of 9% and net return on revenue of 15%. Profitability has been underpinned by a highly competitive expense ratio (three year average: 17%), coupled with loss ratio consistency and a high quantum of investment income (which is a function of the insurer’s sizeable investment portfolio). GCR expects the insurer to sustain medium term earnings strength on the back of continued material scale benefits and the positive impact of portfolio consistency on loss ratio control.

The insurer’s capital base increased to KES6.4bn at FYE15 (FYE14: KES5.5bn), supported by sound retained income. As such, risk adjusted capitalisation remained strong, underpinned by the sizeable capital base catering for the quantum of market, credit and insurance risk exposures. The international solvency margin equated to 73% at FYE15 (FYE14: 75%). Capitalisation is likely to remain within a strong range, supported by continued capital generation.

Liquidity has improved to a strong level, with short term technical provision coverage rising to 0.9x at FYE15. In this regard, the consistent strengthening in liquidity metrics evidenced over the review period has stemmed from strong cash generation from investments and operations. Asset liability matching in the life portfolio is also viewed to be sound, supported by a very large quantum of government bonds backing policyholder liabilities. Going forward, GCR expects existing liquidity strength to be preserved, buoyed by cash generation from operations.

Jubilee Kenya evidences a well diversified earnings profile. High premium volumes from multiple products across the composite portfolio have facilitated flexibility to contain cross cycle challenges. In this regard, the insurer has derived a healthy earnings spread from its core medical book, coupled with ancillary lines and select long term products.

Reinsurance on treaty business is led by well rated domestic and foreign counterparties, with aggregate strength being assessed at strong levels. Furthermore, the 2016 reinsurance program evidences no significant changes with the maximum deductible per event and risk being maintained at KES10m (0.2% of capital).

The rating currently matches the national scale ceiling applicable to entities operating within the Kenyan insurance industry. In this regard, positive rating action may follow an assessment of country and industry risk factors. Conversely, downward rating pressure could arise through a sustained reduction in risk-adjusted capitalisation and/or liquidity. A more aggressive investment strategy, as well as a weakening in operating performance which reduces credit strength may also increase downgrade pressure.

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (May 2007)    
Claims paying ability: AA-(KE)    
Outlook: Stable    
     
Last rating (June 2015)    
Claims paying ability: AA-(KE)    
Outlook: Stable    

ANALYTICAL CONTACTS

Primary Analyst   Secondary Analyst
Marc Chadwick   Godfrey Chingono
Sector Head: Insurance Ratings   Credit Analyst
(011) 784-1771   (011) 784-1771
chadwick@globalratings.net

  godfreyc@globalratings.net

   
     
Committee Chairperson    
Yvonne Masiku    
Senior Credit Analyst    
(011) 784-1771    
ymasiku@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2015

Criteria for Rating Long Term Insurance Companies, updated July 2015

Jubilee Kenya 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.

The Jubilee Insurance Company Kenya 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 The Jubilee Insurance Company Kenya Limited with no contestation of the rating.

The information received from The Jubilee Insurance Company Kenya Limited and other reliable third parties to accord the credit rating included:

  • Audited financial results as per 31 December 2015
  • 5 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 The Jubilee Insurance Company Kenya Limited’s rating at AA-(KE); Stable Outlook.

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