Johannesburg, 7 August 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to The Jubilee Insurance Company of Kenya Limited of AA-(KE), with the outlook accorded as Stable. The rating is valid until June 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to The Jubilee Insurance Company of Kenya Limited (“Jubilee Kenya”) based on the following key criteria:
Jubilee Kenya’s very strong competitive position represents a key rating strength. Jubilee Kenya is the leading domestic non-life insurer, and second largest insurer in the domestic life arena. GCR expects market strength to be sustained over the rating horizon, supported by the insurer’s strong brand, and established market presence in core portfolios (in particular medical) and market segments.
GCR views Jubilee Kenya’s earnings capacity to be strong. The insurer has recorded strong and stable underwriting margins over the review period. This has been underpinned by a well contained cost base and a stable (albeit comparatively elevated) loss ratio. Further, the life segment continues to contribute positively to overall earnings, while also reflecting sufficiency in the life fund.
Capitalisation has been measured at strong levels over the past two years, and lends significant support to the rating. GCR expects capital adequacy to be sustained at healthy levels going forward, supported by robust internal capital generation and well managed underwriting risk.
Key liquidity metrics are viewed to be adequate. In this regard, technical provision coverage and claims cash coverage remained stable at 0.7x and 10 months respectively at FYE14. Going forward, a consistent investment strategy is expected to retain liquidity at adequate levels.
The size and relatively balanced asset allocation of the investment portfolio are supportive of healthy investment returns and a moderate degree of liquidity support. Moreover, Jubilee Kenya maintains one of the largest deposit administration portfolios in the market, which is backed by a suitable mix of invested assets. However, some investment risk prevails amidst a heightened prominence of listed equities relative to capital, although it is considered manageable in relation to the insurer’s current loss absorption capacity.
Net retentions per risk and event are contained at low levels relative to capital, whilst most reinsurance counterparties evidence an intermediate aggregate level of counterparty strength.
The insurer’s gross earnings stream is underpinned by medical and motor business, accounting for a stable 73% of premium volumes combined in FY14. Nonetheless, certain smaller specialist lines of business, while remaining relatively constrained on a volume basis, offer the insurer relevant diversification benefits.
Upward movement of the rating or outlook could develop from further strengthening in the insurer’s liquidity profile, whilst maintaining operating performance and solvency metrics at strengthened levels. A reduction in exposure to market risk would also contribute positively to balance sheet strength. Conversely, downward rating pressure could arise from a decline in key solvency or liquidity metrics, and/or a reversion to a more risky investment stance. Further, a marked weakening in underwriting profitability over a sustained period could give rise to a rating downgrade.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (May 2007)|
|Claims paying ability: AA-(KE)|
|Last rating (June 2014)|
|Claims paying ability: AA-(KE)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Fidelis Masheka|
|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
Criteria for Rating Long Term Insurance Companies, updated July 2015
Jubilee Kenya rating reports, 2007-2014
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 of 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 of Kenya Limited with no contestation of the rating.
The information received from The Jubilee Insurance Company of Kenya Limited and other reliable third parties to accord the credit rating included:
- The 2014 audited financial statements
- 4 years of comparative audited numbers
- Unaudited interim results as per 31 March 2015
- Budgeted financial statements for 2015
- 2015 reinsurance cover notes
- Other related documents.
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.
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.|
|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