Announcements Insurance Rating Alerts

GCR revises The Jubilee Insurance Company of Uganda Limited’s national scale financial strength rating to AAA(UG); Outlook Stable

Rating Action

Johannesburg, 27th September 2019 – GCR Ratings (“GCR”) has revised The Jubilee Insurance Company of Uganda Limited’s (“Jubilee Uganda”) national scale financial strength (formerly claims paying ability) rating to AAA(UG), Stable Outlook from AA-(UG), Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
The Jubilee Insurance Company of Uganda Limited Financial strength National AAA(UG) Stable Outlook

GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for Jubilee Uganda was placed ‘Under Criteria Observation’. GCR finalised the review for Jubilee Uganda under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for Jubilee Uganda has been revised in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.

Rating Rationale

Jubilee Uganda exhibits an excellent credit profile that is supported by an exceptionally strong financial profile, exhibiting high capital redundancy and excess liquidity relative to obligations. This has been facilitated by comparatively strong competitive positioning over the review period, offsetting limited product diversification.

The very strong financial profile is largely a function of consistently robust earnings capacity, with the five year underwriting margin and return on revenue equating to 28% and 40% respectively. In this regard, capital grew at a compound annual growth rate of 19% to UGX95bn, tolerating cumulative dividend distributions amounting to UGX34bn (USD19m) over the past five years (corresponding to a dividend cover of 2.5x). This exceeded growth in covered risks, which are structurally low, resulting in a gradual increase in capital adequacy.

Concurrently, liquidity strengthened within a similar range, supported by management’s strategy of investing mainly in liquid assets. This has been compounded by the positive systematic impact of cash and carry regulations that buttressed cash generation from operations (on the backdrop of the insurer’s very high earnings generation). As such, liquid assets covered technical liabilities and operational cash requirements by a high 2.9x (FY17: 2.2x) and 23 months (FY17: 28 months) respectively, with the elevated level of metrics expected to persist over the medium term.

The foregoing credit strengths are predicated on a solid business profile, characterised by a high and stable market share of 26% in FY18, largely a function of well-established market presence, significant direct business sourcing arrangements and solid group cross selling platforms. Premium diversification represents a weakness in the business model, with the medical portfolio representing the primary line and secondary support stemming from similarly granular motor risks. A low level of premium retention (FY18: 35%) reduces risk base spread to two significant lines.

Jubilee Uganda’s overall credit strength is impacted by that of The Jubilee Kenya Insurance Company Limited, as the core operating entity of the group.

Outlook Statement

The Stable Outlook reflects expectations that the insurer will sustain strong credit fundamentals, given very comfortable headroom of credit protection metrics.

Rating triggers

The national scale financial strength rating is at its ceiling. Conversely, downward rating pressure may arise from a material deterioration in capitalisation and/or liquidity below expectations. Furthermore, a weakening of group’s credit profile may result in negative ratings pressure.

Analytical Contacts

Primary analyst Godfrey Chingono Deputy Sector Head: Insurance Ratings
Johannesburg, ZA GodfreyC@GCRratings.com +27 11 784 1771
Committee chair Yvonne Mujuru Sector Head: Insurance Ratings
Johannesburg, ZA YMujuru@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, June 2019
GCR Insurance Sector Risk Scores, July 2019
GCR revises Jubilee Kenya’s national scale rating to AA(KE); Outlook Stable, September 2019

Ratings History

The Jubilee Insurance Company of Uganda Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Claims paying ability Initial National A+(UG) Stable May 2007
Last National AA-(UG) Stable June 2018

RISK SCORE SUMMARY

Risk scores Jubilee Uganda
Operating environment 7.25
Country risk score 3.50
Sector risk score 3.75
Business profile 0.50
Competitive position 1.25
Premium diversification (0.75)
Management and governance 0.00
Financial profile 5.50
Earnings 1.50
Capitalisation 2.00
Liquidity 2.00
Comparative profile (1.75)
Group cap (1.75)
Government support 0.00
Peer analysis 0.00
Total score 11.50

Glossary

Accident An unplanned event, unexpected and un-designed, which occurs suddenly and at a definite place.
Accounting A process of recording, summarising, and allocating all items of income and expense of the company and analysing, verifying and reporting the results.
Agency An insurance sales office which is directed by an agent, manager, independent agent, or company manager.
Assets A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Balance Sheet Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
Budget Financial plan that serves as an estimate of future cost, revenues or both.
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.
Commission A certain percentage of premiums produced that is received or paid out as compensation by an insurer.
Contract An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the 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.
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.
Diversification Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
Equity Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.
Experience A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time period.
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.
Financial Flexibility The company’s ability to access additional sources of capital funding.
Income Statement A summary of all the expenditure and income of a company over a set period.
Interest Money paid for the use of money.
Interest Rate The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.
Investment Income The income generated by a company’s portfolio of investments.
Investment Portfolio A collection of investments held by an individual investor or financial institution.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
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.
Market Risk Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.
Net Profit Trading/operating profits after deducting the expenses detailed in the profit and loss account such as interest, tax, depreciation, auditors’ fees and directors’ fees.
Net Retention The amount of insurance that a ceding company keeps for its own account and does not reinsure.
Operational Risk The risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. This includes legal risk, but excludes strategic risk and reputational risk.
Personal Lines Types of insurance, such as auto or home insurance, for individuals or families rather than for businesses or organisations.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.
Policyholder The person in actual possession of an insurance policy.
Preference Share Preference or preferred shares entitle a holder to a first claim on any dividend paid by the company before payment is made on ordinary shares. Such dividends are normally linked to an interest rate and not determined by company profits. Preference shares are normally repayable at par value in the event of liquidation. They do not usually carry voting or pre-emptive rights. Preference shares can be redeemable or perpetual.
Premium The price of insurance protection for a specified risk for a specified period of time.
Rating Horizon The rating outlook period
Reinstatement The resumption of coverage under a policy, which has lapsed.
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.

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 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 credit rating has been disclosed to The Jubilee Insurance Company of Uganda Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

The Jubilee Insurance Company of Uganda Limited participated in the rating process via face-to-face 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 Jubilee Insurance Company of Uganda Limited and other reliable third parties to accord the credit rating included:

  • Audited financial statements as at 31 December 2018;
  • Four years of comparative audited financial statements to 31 December
  • Full year budgeted financial statements for 2019;
  • Reinsurance cover notes for 2019;
  • Other relevant documents.
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