Johannesburg, 29 June 2018 — Global Credit Ratings has today affirmed the national scale claims paying ability assigned to The Jubilee Insurance Company of Uganda Limited of AA-(UG), with the outlook accorded as Stable. The rating is valid until June 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to The Jubilee Insurance Company of Uganda Limited (“Jubilee Uganda”) based on the following key criteria:
Jubilee Uganda reflects very strong risk adjusted capitalisation, which is a key rating strength. This has been underpinned by strong capital generation throughout the review period. Accordingly, the international solvency margin equated to a high 155% at FY17 (BGT18: 127%) and 118% after adjusting for aged premiums and proposed dividends. In this regard, GCR views the insurer to be adequately capitalised to withstand potential losses stemming from unsettled accounts, while noting solvency protection from a prudent and stable dividend cover.
The insurer’s competitive position remains dominant, evidencing substantial capacity to assume more risk relative to peers. In FY17, Jubilee Uganda controlled a market share of 27% (second largest player: 21%), albeit with a strategically lower participation at a net premium level. Given the insurer’s well established market presence, strong brand recognition (supporting substantial direct sales) and solid group cross-selling platforms, GCR expects further entrenchment in competitiveness over the medium term.
Earnings capacity is viewed to be very strong, supported by substantial commission recoveries, coupled with a comparatively efficient operational cost structure. In this regard, underwriting margins have averaged a very high 28% over the last five years. Furthermore, investment income reinforces earnings strength, having contributed 21% of net earned premiums over a similar period. Going forward, in light of the company’s low cost product distribution and prudent underwriting strategy, GCR expects very strong earnings capacity to persist.
Aggressive working capital management, coupled with cash leakage minimising disciplines, maintained liquidity within a sound range through the cycle. Over the past three years, cash generation from operations exceeded operational profits, testament to high earnings quality and relative power on value chain cash. These factors are expected to underpin stable liquidity strength over the outlook horizon, complemented by a conservative strategic asset allocation (97% allocation to cash and equivalents), which over the review period supported a minimum claims cash cover and net technical provision cover of 35 months (FY17: 43 months) and 1.8x (FY17: 2.2x), respectively. This was in spite of moderation from sizeable dividend payments.
The insurer’s moderately strong earnings profile is supported by high volumes in core lines, which exhibit robust earnings potential and relatively low product risk. However, the diversification of risk premiums remains limited, with only two lines contributing materially. The insurer’s reinsurance panel reflects a sound aggregated level of credit strength. Maximum net deductibles are viewed to be conservatively low relative to capital.
The rating currently matches the national scale ceiling applicable to entities operating within the Ugandan insurance industry. In this regard, positive rating action may follow an assessment of country and industry risk factors. Conversely, downward rating pressure could arise if risk-adjusted capitalisation deteriorates to a level that does not support the rating or if operating performance falls markedly short of GCR’s expectations.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (May 2007)|
|Claims paying ability: A+(UG)|
|Last rating (July 2017)|
|Claims paying ability: AA-(UG)|
|Primary Analyst||Committee Chairperson|
|Godfrey Chingono||Yvonne Mujuru|
|Senior Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784 – 1771||(011) 784 – 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
The Jubilee Insurance Company of Uganda Limited rating reports, 2007-2017
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/RATING-SCALES-DEFINITIONS. 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 Uganda 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 Uganda Limited with no contestation of the rating.
The information received from The Jubilee Insurance Company of Uganda Limited and other reliable third parties to accord the credit rating included:
- The 2017 audited annual financial statements Four years of comparative audited numbers
- Unaudited interim results to 30 April 2018
- Budgeted financial statements for 2018
- 2018 reinsurance cover notes
- Other related documents.
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.
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capitalisation||The provision of capital for a company, or the conversion of income or assets into capital.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its risks.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Distribution Channel||The method utilised by the insurance company to sell its products to policyholders.|
|Enterprise Risk Management||ERM refers to an integrated or holistic approach to managing risk across an organisation, using clearly articulated frameworks and processes controlled from board level.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|International Scale Rating (“ISR”)||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Intermediary||A third party in the sale and administration of insurance products.|
|Interest||Money paid for the use of money.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liquidity||The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating (“NSR”)||National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.|
|Policyholder||The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Premium||The price of insurance protection for a specified risk for a specified period of time.|
|Rating Horizon||The rating outlook period|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short Term||Current; ordinarily less than one year.|
|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.|
|Subordinated Debt||Debt that in the event of a default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.|
|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.|
|Underwriting Margin||Measures efficiency of underwriting and expense management processes.|
For a more detailed glossary of term, please click here
GCR affirms The Jubilee Insurance Company of Uganda Limited’s rating at AA-(UG); Outlook Stable.