GCR has maintained Goldstar Insurance Company Limited’s (“Goldstar”) national scale claims paying ability rating at A+(UG) (single A plus). The rating signifies a high claims paying ability and above average protection provided to policyholders.
Goldstar has been operating in the Ugandan insurance arena since 1996, and has established itself as one of the leading companies in the domestic insurance market. The insurer is a 90% owned subsidiary of Goldstar International, a company registered offshore, with the remaining 10% held by the company chairman. Goldstar operates across the broad spectrum of general business lines, and more recently life. The insurer mainly participates in the corporate and commercial space, and is also active in the government and parastatal market.
The rating was supported by Goldstar’s sound capitalisation measures, as evidenced by international solvency of 274% and statutory solvency of 126% in F11. Furthermore, capitalisation levels are expected to remain comfortable in the medium term, underpinned by comprehensive reinsurance support and Goldstar’s conservative dividend policy. With respect to reinsurance protection, maximum net retention on XOL for 2012 amounts to UShs25m on both a per risk and event basis (2011: UShs15m), which equates to 0.2% of FYE11 capital. In terms of the recently introduced life division, Goldstar’s current maximum net retention is UShs15m on any one life for both group and individual life. However, no life CAT cover is in place, which is considered a risk. A further supporting factor to the rating is the insurer’s conservative investment stance, underpinning a low risk balance sheet and sound liquidity measures, with cash coverage of technical reserves (F11: 3.5x) reported well above GCR’s minimum level. An offsetting factor, however, is the high degree of counterparty risk, given that 64% of cash holdings are placed with an associate bank.
In terms of Goldstar’s financial performance, GWP advanced by 29% to UShs16.7bn during F11, slightly ahead of budget. Risk retention amounted to 27% (F10: 32%; budget: 30%), and accordingly, NWP came in 8 percentage points below expectations. NPE was reported 6% above F10. Claims incurred amounted to UShs1.7bn in F11, translating into an earned loss ratio of 38% (F10: 36%; budget: 45%). Management expenses were reported 18% higher at UShs3.1bn, which saw the expense ratio rise to 72% (F10: 64%; budget: 50%), a review period high. Note is, however, taken of the insurer’s high retention, which distorts the expense ratio. In this regard, when viewed against GWP, the expense ratio totalled 19% from 20% in F10. Net commission receipts advanced 46% to UShs2.2bn, equating to a significant 51% of NPE (F10: 37%). This more than compensated for the rise in relative management expenses, underpinning a 21% delivery cost ratio, from 28% in F10 (F11 budget: 18%). Overall, the insurer reported a 20% increase in underwriting profits to UShs1.8bn. This translated into a review period high underwriting margin of 41% (F10: 36%), and represents the fourth consecutive increase from 20% in F07.
Investment income totalled UShs1bn from UShs621m in F10. Following a higher taxation charge, net income after tax amounted to UShs2.3bn (F10: UShs1.7bn). After accounting for unrealised investment and forex gains (UShs275m combined from UShs649m in F10), retained income totalled UShs2.5bn (F10: UShs2.4bn). Consistent with prior years, Goldstar retained all profits, so as to enable a gradually higher retention of premiums.
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.
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