Nairobi, 16 November 2020 – GCR Ratings (“GCR”) has revised Jubilee Life Insurance Company Limited’s (formerly The Jubilee Insurance Company of Kenya, a composite insurer) national scale financial strength rating to AA-(KE) from AA(KE), with the Outlook accorded as Evolving.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|Jubilee Life Insurance Limited||Financial strength||National||AA-(KE)||Evolving Outlook|
The rating of Jubilee Life Kenya reflects the insurer’s reduced credit strengths on a stand-alone basis relative to its former composite profile (which incorporated Jubilee General Insurance Limited and Jubilee Health Insurance Limited).
Jubilee Life Insurance Limited is the successor company of The Jubilee Insurance Company of Kenya Limited following the unbundling of Jubilee General Insurance Limited and Jubilee Health Insurance Limited in FY19 through a dividend in specie to Jubilee Holdings Limited (“the group”, holding subsidiaries in Kenya, Uganda, Tanzania, Burundi and Mauritius). The restructuring was in line with the requirements of the Insurance Act to unbundle composite licences. After the transaction, The Jubilee insurance Company of Kenya Limited (“Jubilee Kenya”) was renamed Jubilee Life Insurance Limited (“Jubilee Life”), representing the group’s life business in Kenya.
Nonetheless, a level of uplift is derived from implicit support from the group, given high shareholding and levels of assimilation, as well as history of performance contributing 17% to the group’s gross earned premiums during the review year. This notwithstanding, the rating takes cognisance of potential changes to the group structure due to an impending corporate transaction, hence the Evolving Outlook.
The rating is supported by Jubilee Life’s strong competitive position within the domestic long-term insurance industry, ranked the 2nd largest with a market share of 14.5% and a relative market share of 3.5x during the review year. The exhibited level of competitiveness is underpinned by the insurer’s strong presence in individual life and Deposit Administration (“DA”) business (albeit noting sectoral challenges in this arena during FY20, which could moderate market share over the short-term). Premium diversification is thus a slight negative with relatively higher participation on the DA business (at c.58.5% of total revenue) reducing exposure to individual life and annuity products.
Earnings are a credit positive. The insurer registered a review period operating margin of 13.8% and a corresponding return on revenue of 11.2%. However, there is a high likelihood of profit margin moderation stemming from a possible 11.0% decline in total income during FY20 on the back of lower GWP and possible fair value losses on listed equities, which forms our base case projections. This view is guided by a 19.7% decline in GWP in 1H F20, due to the impact of COVID-19. While this could increase earnings pressure, there is a possibility for cost containment measures undertaken by the company to counter potential adverse effects on profit margins.
Capitalisation is a negative rating factor due to the relatively low statutory solvency ratio, measuring at 118% as at end of FY19 and 121% as at June 2020. The GCR CAR remained low at 1.0x at FY19, although an improvement from 0.9x in FY18.
Liquidity is intermediate, with the liquidity coverage ratio measuring at 1.2x at FY19, while operational cash coverage equated to 23 months. The assessment balances the insurer’s low surplus and healthy asset liability matching. Positively, the investment portfolio with c.68.0% allocated to long-term securities, c.11.4% to cash and cash equivalents, c.7.1% to listed equity and c.6.4% to investment property is viewed to support sound asset liability matching, given relatively lower sensitivity to market movements.
The Evolving Outlook is premised on uncertainty around (1) the structure of the group after the corporate transaction to dispose majority stakes in short term subsidiaries to Allianz Africa Holding Gmbh, a subsidiary of Allianz SE, domiciled in Germany and (2) the ultimate position of Jubilee Life within the post-transaction Jubilee Holdings Limited group. The rating is supported by Jubilee Life’s market strength and investment portfolio which reduces its exposure to market volatility but constrained by weak capitalisation and intermediate liquidity. The impact of Covid-19 has been factored in premiums but balanced by reduced operating costs, due to measures undertaken by the company.
Jubilee Life’s rating could be upgraded upon a sustained improvement in liquidity, capitalisation and market share. Furthermore, should Jubilee Life’s importance within the post-transaction Jubilee Holdings Limited group emerge higher than currently assessed levels, assuming no material changes in the group’s overall credit profile, the ratings may be upgraded. Downward rating movement could result from lower liquidity and capitalisation metrics, or a significant erosion in market share, as well as a moderation in the assessment of group support.
|Primary analyst||Eleanor Kigen||Senior Analyst|
|Nairobi, KE||EleanorK@GCRratings.com||+254 20 3673618|
|Secondary analyst||Godfrey Chingono||Deputy Sector Head: Insurance|
|Johannesburg, ZA||GodfreyC@GCRratings.com||+27 11 784 1771|
|Committee chair||Vinay Nagar||Senior Analyst: Financial Institutions|
|Johannesburg, ZA||Vinay@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, July 2020|
Jubilee Life Insurance Limited (Formerly Jubilee Insurance Company of Kenya Limited)
|Rating class||Review||Rating scale||Rating class||Outlook/Watch||Date|
|Claims paying ability||Initial||National||AA-(KE)||Stable||May 2007|
|Financial Strength||Last||National||AA(KE)||Stable||September 2019|
Risk score summary
|Rating Components and Factors||Risk score|
|Country risk score||4.00|
|Sector risk score||4.25|
|Management and governance||0.00|
|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.|
|Recovery||The action or process of regaining possession or control of something lost. To recoup losses.|
|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.|
|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.|
|Spread||The interest rate that is paid in addition to the reference rate for debt securities.|
|Statutory||Required by or having to do with law or statute.|
|Valuation||An assessment of the property value, with the value being compared to similar properties in the area.|
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.
Subsequent to an appeal by the rated entity, the ratings and outlooks were revised as reflected in the announcement. 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 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 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
- Unaudited interim results to 30 June 2020;
- Financial Condition Report for 2019;
- Actuarial Valuation Report for 2019;
- Reinsurance cover for 2020; and
- Other relevant documents.