Johannesburg, 1 July 2016 — 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 2017.
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’s extremely strong capitalisation is a key rating strength. This has been underpinned by very strong internal capital generation throughout the review period. Accordingly, the international solvency margin equated to 130% in FY15 (BY16: 152%). Further, the low risk asset exposure supports very high levels of risk-adjusted capitalisation. GCR expects the company to continue to record very strong levels of capitalisation.
The insurer’s competitive position remains dominant. In this respect, Jubilee Uganda continues to be the leading player in the short term insurance industry (market share FY15: 23%). Given the insurer’s well established market presence and strong brand recognition, GCR expects this competitive strength to persist over the rating horizon.
The company’s earnings capacity is viewed to be very strong, supported by substantial scale benefits and strong realised investments returns. Underwriting margins have averaged a very high 29% over the last five years. Going forward, GCR expects Jubilee Uganda to continue to exhibit strong performance, in light of the company’s entrenchment and consistency in core lines.
Liquidity measured at very strong levels, as evidenced by high claims cash cover and technical provision cover of 37 months and 2x respectively. Healthy operational cash flow generation and very conservative asset allocation has facilitated this key rating strength. GCR expects the insurer’s liquidity to be sustained within a very strong range.
The insurer’s 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.
Note is taken of the sizeable amount of debtor arrears over 180 days at FYE15 (UGX12bn; 18% of FYE15 capital). Comfort is however derived from the improved premium collection rate as of YTD16, with a significant portion (UGX6bn) of the outstanding balance collected.
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 (June 2015)|
|Claims paying ability: AA-(UG)|
|Primary Analyst||Secondary Analyst|
|Marc Chadwick||Munyaradzi Mushure|
|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 Uganda rating reports, 2007-2015
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 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 Jubilee Insurance Company Uganda Limited with no contestation of the rating.
The information received from Jubilee Insurance Company Uganda Limited and other reliable third parties to accord the credit rating included:
- Audited financial results as per 31 December 2015
- 5 years of comparative audited numbers
- Unaudited interim results as per 31 March 2016
- Budgeted financial statements for 2016
- The current year reinsurance cover notes
- Other non-public statistical information
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.
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. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.|
|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
GCR affirms The Jubilee Insurance Company of Uganda Limited’s rating of AA-(UG); Stable Outlook.