Announcements Insurance Rating Alerts

GCR affirms The Jubilee Insurance Company of Tanzania Limited’s national scale financial strength rating of A(TZ); Outlook Stable

Rating action

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

Rating rationale

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.

Outlook statement

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.

Rating triggers

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.

Analytical contacts

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

Ratings history

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
Operating environment 6.75
Country risk score 3.75
Sector risk score 3.00
Business profile 0.00
Competitive position 0.75
Premium diversification (0.75)
Management and governance 0.00
Financial profile 1.25
Earnings 0.50
Capitalisation 1.25
Liquidity (0.50)
Comparative profile 0.50
Group support 0.50
Government support 0.00
Peer analysis 0.00
Total Score 8.50

Glossary

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.
image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.