Announcements

GCR downgrades The Jubilee Insurance Company of Tanzania Limited’s rating to A(TZ); Outlook Stable

Johannesburg, 19 October 2017– Global Credit Ratings has today downgraded the national scale claims paying ability rating assigned to The Jubilee Insurance Company of Tanzania Limited to A(TZ) from A+(TZ), with the outlook accorded as Stable. The rating is valid until September 2018.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to The Jubilee Insurance Company of Tanzania Limited (“Jubilee Tanzania”) based on the following key criteria:

The rating action is based on sustained weak risk adjusted capitalisation, constrained by the large quantum of aged debtors relative to capital (54% of FY16 capital). In this regard, the adjusted international solvency margin (exclusive of aged debtors) equated to a low 34% at 9MF17 (FY16: 27%). Despite potential remedial action, the insurer is expected to evidence on-going elevation in aged debtors (9MF17: TZS7.5bn) as outstanding premiums are likely to be recovered over a longer time horizon. As such, risk adjusted capitalisation is expected to trend at weak levels over the rating horizon.

Jubilee Tanzania’s earnings capacity has historically measured at moderately strong levels, with the five year aggregated underwriting margin equating to 7% (FY16: 9%), and the operating margin averaging 16% over the review period. Going forward however, note is taken of potential earnings compression over the outlook horizon, given the expected growth constraints and associated loss of scale benefits, as well as lower projected commission recoveries. Accordingly, the extent to which this impacts on the insurer’s credit profile is expected to be a key rating consideration over the short to medium term.

Key liquidity metrics reduced in FY16, albeit registering within a moderately strong range. In this respect, cash coverage of net technical liabilities equated to a lower 0.9x at FY16 (FY15: 1.2x), while claims cash coverage registered at 11 months (FY15: 16 months). The reduction stemmed from ongoing working capital challenges, which resulted in cash and equivalents decreasing by 20% to TZS20bn at FY16 (FY15: TZS25bn). Liquidity metrics may reduce further going forward, in the absence of improved operating cash flow generation (which is largely dependent on improved premium collections), with liquidity management representing a key rating factor.

Jubilee Tanzania derives significant rating support from its market leadership position, representing approximately 18% of total short term industry GWP in FY16 (FY15: 15%). This is underpinned by the insurer’s comparatively large medical offering, coupled with a well-diversified distribution mix and entrenched broker network. GCR expects Jubilee Tanzania to continue to defend its top tier position, despite likely growth constraints on the back of the shift in competitive dynamics. The latter is attributed to a new directive that was passed stating that all government related business (including business from parastatals) should be undertaken by the National Insurance Corporation of Tanzania, while corporate medical business is to be undertaken by the National Health Insurance Fund.

The reinsurance panel reflects a sound aggregate level of credit strength, while maximum deductibles per risk and event are limited to conservative levels against capital (0.5% at FY16).

A rating upgrade may be considered over the medium term, following sustained strengthening in risk adjusted solvency, coupled with stabilisation in liquidity and earnings. The rating exhibits ongoing negative sensitivity towards continued constraints in risk adjusted capitalisation, particularly due to ongoing collection challenges in the debtors book, coupled with weakening in liquidity. Furthermore, a deterioration in earnings capacity may also negatively affect the insurer’s credit profile.

NATIONAL SCALE RATINGS HISTORY

Initial rating (May 2007)

Claims paying ability: A+(TZ)

Outlook: Stable

Last rating (November 2016)

Claims paying ability: A+(TZ)

Outlook: Negative

ANALYTICAL CONTACTS

Primary Analyst

  Secondary Analyst
Marc Chadwick   Linda Matavire
Sector Head: Insurance Ratings   Junior Credit Analyst
(011) 784-1771   (011) 784-1771
chadwick@globalratings.net   lindam@globalratings.net
     
Committee Chairperson    
Susan Hawthorne    
Senior Credit Analyst    
(011) 784-1771    
susanh@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated July 2017

The Jubilee Insurance Company of Tanzania Limited rating reports, 2007-2016

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; and 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 Tanzania Limited participated in the rating process via 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 and contested by The Jubilee Insurance Company of Tanzania Limited with no change to the rating decision.

The information received from The Jubilee Insurance Company of Tanzania Limited and other reliable third parties to accord the credit rating includes:

  • Audited financial results to 31 December 2016
  • Unaudited interim results to 30 September 2017
  • Four years of comparative audited numbers
  • Budgeted financial statements for 2017
  • 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

Agency An insurance sales office which is directed by an agent, manager, independent agent, or company manager.
Benefits Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.
Broker One who represents an insured in the solicitation, negotiation or procurement of contracts of insurance, and who may render services incidental to those functions. By law the broker may also be an agent of the insurer for certain purposes such as delivery of the policy or collection of the premium.
Budget Financial plan that serves as an estimate of future cost, revenues or both.
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.
Cash Funds that can be readily spent or used to meet current obligations.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
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.
Conditions Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.
Coverage The scope of the protection provided under a contract of insurance.
Credit Rating Agency An entity that provides credit rating services.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Deductible The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.
Downgrade The assignment of a lower credit rating to an insurer by a credit rating agency. Opposite of upgrade.
Financial Statements Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.
International Scale Rating LC 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.
International Solvency Margin Measures the ability to cover current year’s written premiums using shareholder’s funds.
Interest Money paid for the use of money.
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.
Loss The happening of the event for which insurance pays.
National Scale Rating The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
Operating Margin Measures the efficiency of profit generation from investments and underwriting.
Outstanding Premiums Premiums due but not yet collected. Also referred to as premium debtors or premium receivables.
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.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
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.
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.
Upgrade The assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade.
Working Capital Working capital usually refers to the resources that a company uses to finance day-to-day operations. Changes in working capital are assessed to explain movements in debt and cash balances.

For a detailed glossary of terms, please click here

GCR downgrades The Jubilee Insurance Company of Tanzania Limited’s rating to A(TZ); Outlook Stable.

Leave a Reply



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.