Johannesburg, 08 July 2020 – GCR Ratings (“GCR”) has affirmed The Jubilee Insurance Company of Tanzania Limited’s (“Jubilee Tanzania”) national scale financial strength rating of A(TZ); Outlook Stable.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|The Jubilee Insurance Company of Tanzania Limited||Financial strength||National||A(TZ)||Stable Outlook|
The rating for Jubilee Tanzania is supported by moderately strong risk adjusted capitalisation and competitive position, as well as healthy earnings capacity. Offsetting these strengths is limited liquidity, due to high exposure to reinsurance receivables, and low premium diversification. The rating derives uplift from implied group support given the insurer’s history of performance and high levels of assimilation within the Jubilee Holdings Limited group.
The risk adjusted capitalisation assessment reflects expected support from internal capital generation, countering short term risks from the COVID-19 pandemic. The GCR Capital Adequacy Ratio (“CAR”) measured at 1.6x at FY19 (FY18: 1.8x), reflecting pressure from underwriting and credit risk exposures. Retention of all earnings (prior four year average dividend pay-out: 32%) is expected to support a rebound in the metric to 1.8x in FY20, factoring in an expected modest impact from COVID-19 pandemic risks. However, exposure to reinsurance receivables (70% of FY19 capital) reduces the asset quality assessment and is viewed to be credit negative. Despite a cash and carry environment, Jubilee Tanzania’s liquidity assessment remained within a limited range, due to the aforesaid cash extraction from dividend payments and working capital absorption from reinsurance receivables. In this regard, cash and stressed assets covered net technical liabilities by 1.6x (FY18: 1.3x; FY17: 1.5x), whilst the duration of the dividend reprieve instituted in FY20 and consistence in executing working capital management enhancement measures could sustain the metric above 1.5x over the medium term.
Earnings have been maintained within a healthy range, with increased focus on improving the risk portfolio’s quality expected to enhance medium term profitability. The insurer registered a stable underwriting margin of 11% in FY19 (FY18: 10%; FY15-FY17 average: 7%), driven by a gradual reduction in the loss ratio. This was mainly due to better loss control in motor and medical lines, on the back of risk selection and portfolio cleaning efforts. However, earnings are sensitive to an increase in the total expense ratio and compression in investment yields (FY19: 5%; FY17: 10%), as well as exposure to potential COVID-19 related claims. In this respect, earnings management through the current transition to a higher cycle is a key rating input over the medium term.
Jubilee Tanzania’s moderately strong competitive position is rating positive, although concerted portfolio cleaning efforts could moderate market leadership position over the medium term. The insurer is the largest short term insurer in the domestic market, accounting for 13.5% (FY18: 15.4%) of gross premiums and a relative market share of 3.4x in FY19. This derives from long standing market relationships and an expansive business network. However, increased focus on improving the quality of the medical book and enhanced process diligence compounded ongoing premium losses in the motor line due to selective underwriting, slowing review year premium growth to 5% against an industry average of 19%. Going forward, the insurer’s market position is likely to be diluted in line with increasing competitive dynamics in the market and increasing focus on the quality of the book.
Premium diversification is fairly balanced among four lines of business at gross level, with lower risk appetite on accident narrowing the risk base to three significant lines. The client base is corporate centric, albeit with the largest and top five clients accounting for 2% and 8% of gross premiums respectively, evidencing policy granularity. The insurer’s single market focus, though limiting the factor’s assessment, is viewed in the context of the regionalisation strategy of the group.
GCR expects the financial profile to be maintained within the current range, supported by persistence in earnings generation, enhanced conservativism in dividend pay-outs and intensified efforts on reducing exposure to reinsurance receivables. The business profile is expected to remain stable, tolerating the impact of the ongoing portfolio cleaning exercise.
The rating could be upgraded on a sustained strengthening in risk adjusted capitalisation and liquidity. Conversely, the rating is sensitive to weaker than expected earnings or risk adjusted capitalisation.
|Primary analyst||Godfrey Chingono||Deputy Sector Head: Insurance|
|Johannesburg, ZA||GodfreyC@GCRratings.com||+27 11 784 1771|
|Committee chair||Susan Hawthorne||Senior Analyst|
|Johannesburg, ZA||SusanH@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, May 2020|
|GCR Insurance Sector Risk Scores, June 2020|
The Jubilee Insurance Company of Tanzania Limited
|Rating class||Review||Rating scale||Rating class||Outlook/Watch||Date|
|Claims paying ability||Initial||National||A+(TZ)||Stable||May 2007|
|Financial strength||Last||National||A(TZ)||Stable||September 2019|
Risk score summary
|Rating Components and Factors||Risk score|
|Country risk score||3.75|
|Sector risk score||3.00|
|Management and governance||0.00|
|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 party. 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 face-to-face 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:
- Audited financial results as at 31 December 2019;
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements for 2020;
- Unaudited interim results to 31 March 2020;
- Reinsurance cover notes for 2020; and
- Other relevant documents.