Johannesburg, 07 July 2020 – GCR Ratings (“GCR”) has affirmed The Jubilee Insurance Company of Uganda Limited’s (“Jubilee Uganda”) national scale financial strength rating of AAA(UG); Outlook 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 |
Jubilee Uganda’s national scale financial strength rating reflects the insurer’s exceptionally strong financial profile driven by robust earnings generation, with the insurer’s profits averaging above 50% of industry statutory profits over the past two years. In this respect, historically high levels of capital redundancy are likely to be maintained over the outlook horizon, although currently robust liquidity could moderate to a lower range in the absence of countermeasures to manage COVID-19 pandemic risks. The insurer’s competitive position is strong and viewed to be resilient to short term risks, while the premium diversification assessment is limited by domestic market focus.
The insurer occupies a leading market position in the domestic short term insurance sector, with market share and relative market share having been maintained above 25% and 4.5x over the review period. Market entrenchment is supported by significant business sourcing arrangements, which are fed by solid group cross selling platforms, providing underwriting capacity in less contested segments of the market. The insurer is one of the three players participating in the medical line, a position that has been facilitated by investments in service provider network management and enabling underwriting systems that manage high incidences of fraud and benefit overutilization. Review year trading was challenged by portfolio quality concerns, with the insurer losing top position in the medical line, however continued investment in data analytics and the review of underwriting procedures, coupled with strong trading in the general business, is expected to support business retention going forward. In this regard, the insurer’s premium diversification, though limited by domestic market focus, evidences a balancing of medical risks by material presence in fire and motor lines, with the corporate centric book well spread among clients and intermediaries. GCR expects the insurer’s business profile to remain stable and well balanced over the medium term.
Robust earnings have been sustained over the review period, with the average underwriting margin and return on revenue measuring at a stable 29% and 40% respectively. This was in spite of the review year loss ratio approaching a local peak of 60% on the back of higher claims frequency on both fire and medical portfolios. In this regard, Jubilee Uganda’s earnings remain predicated on a very competitive cost structure, recording a review year total expense ratio of 16% (FY19: 9%), which provides significant margin headroom to cater for variations in the loss ratio. Overall, earnings capacity is expected to remain robust, with underwriting margins and returns on revenue likely to average above 20% and 30% respectively, comfortably tolerating short term stresses.
The combination of robust internal capital generation and a low insurance risk retention model, coupled with well controlled market risk, positions Jubilee Uganda at excellent capital adequacy levels, despite consistent dividend distributions. The insurer’s GCR Capital Adequacy Ratio (“CAR”), measuring at 3.9x (FY18: 3.2x), is robust, considering a consistent 40% dividend pay-out ratio over the review period. In this respect, GCR sees sufficient coverage headroom to buffer risks from the COVID-19 pandemic, further aided by flexibility in management actions. Under stressed scenarios catering for an increase in risk retention and continued dividend extraction, the insurer’s GCR CAR is likely to register above 2.5x, supporting a robust medium term capital assessment.
Strong liquidity derives from conservative investing, supporting liquidity coverage of 2.8x and coverage of operational requirements by 29 months in FY19. However, under COVID-19 pandemic stressed scenarios liquidity could lower below 2x, given the insurer’s slow shortening of the cash collection cycle, especially if dividend extraction persists.
Outlook statement
The Stable Outlook reflects the insurer’s solid financial profile, with metrics evidencing healthy buffers under COVID-19 pandemic stressed scenarios. GCR expects a strong CAR to persist and the possible reduction in liquidity is likely to be contained within a rating adequate range. The business profile and earnings capacity are likely to remain stable, supported by lower than anticipated underwriting pressure, especially on the medical book, in the first half of 2020.
Rating triggers
The national scale financial strength rating is at its ceiling. Conversely, downward rating pressure may arise from a material deterioration in liquidity below expectations. Furthermore, a weakening of the group’s credit profile may result in negative rating pressure.
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 Uganda Limited
| Rating class | Review | Rating scale | Rating class | Outlook/Watch | Date |
| Claims paying ability | Initial | National | A+(UG) | Stable | May 2007 |
| Financial strength | Last | National | AAA(UG) | Stable | September 2019 |
Risk score summary
| Rating Components and Factors | Risk score |
| Operating environment | 7.00 |
| Country risk score | 3.25 |
| Sector risk score | 3.75 |
| Business profile | 0.50 |
| Competitive position | 1.25 |
| Premium diversification | (0.75) |
| Management and governance | 0.00 |
| Financial profile | 5.00 |
| Earnings | 1.50 |
| Capitalisation | 2.00 |
| Liquidity | 1.50 |
| Comparative profile | (2.00) |
| Group cap | (2.00) |
| Government support | 0.00 |
| Peer analysis | 0.00 |
| Total Score | 10.50 |
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 a virtual management meeting, 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 entities 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.
