Announcements Insurance Rating Alerts

GCR assigns initial rating of A-(KE) to Jubilee Health Insurance Limited; Outlook Evolving

Rating action

Johannesburg, 23 September 2021- GCR Ratings (“GCR”) has assigned Jubilee Health Insurance Limited (“Jubilee Health Kenya”) a first time national scale financial strength rating of A-(KE), with an Evolving Outlook.

Rated entity / issue Rating class Rating scale Rating Outlook/Watch
Jubilee Health Insurance Limited Financial strength National A-(KE) Evolving Outlook

Rating rationale

The rating of Jubilee Health Kenya reflects its competitive strength in the medical insurance niche market, strong earnings and intermediate capitalisation. These strengths are however partially diluted by moderate levels of liquidity and premium diversification given the insurer’s monoline status and single market focus. The Evolving Outlook captures rating direction uncertainty post disposal of general business subsidiaries at the parent company level, Jubilee Holdings Limited.

Jubilee Health Kenya is the leading medical insurance underwriter in the local market, commanding a very strong market share of 18.5% in that niche in FY20, being 3.7x larger than an average medical insurer in Kenya. Competitive strength is largely underpinned by access to shareholders’ networks, along with a strong brand considering the insurer’s long operating history in the market. Looking ahead, the underwriter is expected to cement its competitiveness within the medical insurance space by focusing on untapped customer segments and forging partnerships with various stakeholders.

The business mix reflects Jubilee Health Kenya’s monoline status and specialisation in underwriting medical insurance risks. Nevertheless, the product is fairly distributed through multiple channels, including among others agents, brokers, direct sales. Market segment mix is corporate centric, accounting for 55% of GWP in FY20, with government business and personal lines constituting the balance at 35% and 9%, respectively. Despite the dominance of corporate risks in the mix, policyholder distribution exhibits moderate diversification with the largest client accounting for 7.5% of GWP in FY20 (FY19: 4.8%), while top 20 policyholders constituted 40.4% (FY19: 44.3%). The lack of geographic and product diversification versus insurance peers, further limits our overall assessment of premium diversification.

Earnings are assessed within a strong range, reflecting above-average profitability at underwriting level. In this respect, Jubilee Health Kenya benefits from scale efficiencies, sustaining a favourable operating expense ratio which averaged 17% over the past three years. Furthermore, loss experience has been contained within healthy levels over the corresponding period, with aggregate net claims incurred as a proportion of earned premiums equating to 69% (FY20: 69%). Accordingly, the entity posted cumulative underwriting surplus of KES1.9bn over the last three years, translating to an average underwriting margin of 12.3% (FY20: 12.0%). Nevertheless, net investment income plummeted 42% to KES285m in FY20, largely driven by a reduction in fair value gains on unquoted securities, prompting a moderation in return on revenue to 12% (FY19: 15%; FY18: 18%). Despite prospects of a partial recovery in investment income, current year earnings are likely to be negatively impacted by growing business acquisition costs following a change in the reinsurance programme from quota share to excess of loss. In this respect, both the underwriting margin and return on revenue are expected to moderate to around 10% in FY21.

Risk adjusted capitalisation is assessed within a moderately strong range, reflecting adequate coverage of aggregate risk exposures by admitted capital. Notwithstanding ongoing attempts to build conservativeness in the investment portfolio, market risk remains elevated given the significance of risky securities in the asset mix. Positively, the capital base grew 21% to KES3.3bn at FY20 and is projected to expand further, underpinned by healthy earnings generation and retention, serving to dilute the aforesaid exposures. From a statutory solvency standpoint, the insurer’s capital adequacy ratio measured at 172% at FY20 (FY19: 116%), with the improvement driven by internal capital generation.

Liquidity measured within an intermediate range, constricted by exposure to illiquid instruments, notably investments in associate companies, which amounted to KES1.4bn at FY20, constituting 24% of total invested assets. Accordingly, cash and stressed financial assets covered net technical liabilities by 1.1x (FY19: 0.7x), while coverage of operational cost requirements equated to 8 months (FY19: 4 months). Note is taken of review year improvement in operational cash generation, proceeds of which were invested in low-risk assets. This strategy, if sustained, could assist in mitigating the aforementioned exposures and potentially improve liquidity metrics over the medium to longer term. However, deposits were concentrated in a single banking counterparty which is also a related party, presenting downside risk to overall liquidity assessment.

Outlook statement

The Evolving Outlook captures rating direction uncertainty post disposal of general business subsidiaries at the parent company level. Post the transaction, Jubilee Health Kenya may evolve as the core operating entity or an essential part of Jubilee Holdings Limited. This could entail a change in the analytical approach to consider the credit profile of the emerging group after the transaction, which may differ from that of Jubilee Health Kenya.

Rating triggers

The rating may be upgraded (downgraded) should the credit profile of the group post the transaction emerge stronger (weaker) than that of Jubilee Health Kenya. On a stand-alone basis, positive rating movement may stem from a sustained improvement in the entity’s business profile and risk adjusted capitalisation, while downward rating sensitivities pertain to continued earnings pressure and/or material deterioration in liquidity.

Analytical contacts

Secondary analyst Tichaona Nyakudya Senior Analyst: Insurance Ratings
Johannesburg, ZA TichaonaN@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@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, August 2021
GCR Insurance Sector Risk Scores, April 2021

Rating history

Jubilee Health Insurance Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Financial strength Initial / Last National A-(KE) Evolving Outlook September 2021

Risk score summary

Rating components and factors Risk scores
Operating environment 8.25
Country risk score 4.00
Sector risk score 4.25
Business profile 0.25
Competitive position 1.25
Premium diversification (1.00)
Management and governance 0.00
Financial profile 0.25
Earnings 0.75
Capitalisation 0.50
Liquidity (1.00)
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total score 8.75

SALIENT POINTS OF ACCORDED RATING

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 entity. 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 virtual 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 entity and other reliable third parties to accord the credit rating included:

  • Company audited financial results as at 31 December 2020;
  • Four years of comparative group and company audited financial statements to 31 December
  • Full year budgeted financial statements to December 2021;
  • Unaudited interim results to 30 June 2021;
  • Current year reinsurance cover notes; and
  • Other relevant documents.
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