GCR affirms UAP Old Mutual Insurance Uganda Limited's national scale financial strength rating at A+(UG); Outlook Stable Rating Action
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GCR affirms UAP Old Mutual
Insurance Uganda Limited’s
national scale financial
strength rating at A+ ( U G ) ;
Outlook Stable
Rating Action
Johannesburg, 30 th September 2019 – GCR Ratings (“GCR”) has
affirmed UAP Old Mutual Insurance Uganda Limited’s (“UAP Old
Mutual Uganda”) national scale financial strength (formerly
claims paying ability) rating at A+(UG), Stable Outlook.
Rated Entity / Rating
Rating class Rating Outlook/Watch
Issue scale
UAP Old Mutual
Financial
Insurance National A+(UG) Stable Outlook
strength
Uganda Limited
GCR announced that it had released new criteria for rating
insurance companies in May 2019. Consequently, the rating for
UAP Old Mutual Uganda was placed ‘Under Criteria Observation’.
Printed on: Dec 22, 2021 / Location:
https://gcrratings.com/announcements/gcr-affirms-uap-old-mutual-insurance-uganda-limiteds-national-scale-financial
-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019GCR finalised the review for UAP Old Mutual Uganda under the
released Criteria for Rating Insurance Companies, May 2019. As
a result, the rating for UAP Old Mutual Uganda has been
affirmed in line with the new methodology and subsequently
removed from ‘Under Criteria Observation’.
Rating Rationale
The rating affirmation reflects UAP Old Mutual Uganda’s
moderately strong and stable business profile, characterised
by a strong competitive position, partially offset by product
concentration. While positive structural changes are
observable on the firm’s liquidity and earnings capacity, a
neutral financial profile is viewed to persist over the rating
horizon.
The insurer’s sound competitive position is underpinned by a
high and stable market share of 20% and relative market share
of 4x in the domestic short term insurance market in FY18.
Competitive positioning has been supported by established
market relations and strong brand resonance with the group.
The dual brand has served to retain the heritage of the UAP
brand in East Africa and blend it with the international image
of Old Mutual, hence providing scope for strong business
retention and transition into new markets. Going forward,
there are plans for full brand transition to Old Mutual as the
brand’s equity matures within the market. However, the product
Printed on: Dec 22, 2021 / Location:
https://gcrratings.com/announcements/gcr-affirms-uap-old-mutual-insurance-uganda-limiteds-national-scale-financial
-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019portfolio displays concentration to two significant lines of
business, with an elevated skew towards medical risks. This
has impacted on the overall quality of risks over the review
period, with a moderation in both concentration and market
share expected on the back of stringent underwriting and risk
selection in problem portfolios. This notwithstanding, GCR
expects the insurer’s high market share to afford a level of
business profile defensiveness.
UAP Old Mutual Uganda managed to turn around earnings capacity
to an intermediate level in FY18, from moderately weak levels
previously. The improvement was largely driven by a reduction
in operating expenses through the rationalisation of staff and
automation initiatives, cutting the operating expense ratio to
29% (prior four year average: 40%). Furthermore, the net
commission ratio lowered to 9% (FY17: 11%; BGT19: 10%),
potentially cementing underwriting performance at positive
levels, given profit headroom enhancement expected from
increased direct selling in FY19. Note is also taken of
potential for further earnings support from remediation
efforts on the medical book, leaving loss ratio control as the
next frontier for earnings improvement over the medium term.
Risk adjusted capitalisation is likely to be maintained at an
intermediate level over the rating horizon, supported by well
contained underwriting and credit risks. However, relatively
low quality of capital constrains the factor assessment. The
insurer’s ability to sustain an improvement in internal
Printed on: Dec 22, 2021 / Location:
https://gcrratings.com/announcements/gcr-affirms-uap-old-mutual-insurance-uganda-limiteds-national-scale-financial
-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019capital generation could provide some reprieve over the
outlook horizon. Liquidity measured within a moderate range,
with operational cash coverage and cash coverage of net
technical liabilities equating to 12 months (FY17: 10 months)
and 1.8x (FY17: 1.7x) respectively. An improvement in
liquidity metrics, backed by prospects of increased
operational cash flows and systematic support from cash and
carry regulations, represents a key rating consideration over
the medium term.
The rating derives support from UAP Holdings Limited, a
majority shareholder, given evidence of strategic and
operational importance.
Outlook Statement
The Stable Outlook reflects expectations of short term
consolidation of earnings and liquidity metrics within similar
ranges over the rating horizon.
Rating Triggers
The ratings could be upgraded on the back of sustained
improvements in earnings capacity and/or liquidity.
Conversely, downward rating pressure could arise from
increased exposure to risky assets that dilutes risk adjusted
capitalisation.
Printed on: Dec 22, 2021 / Location:
https://gcrratings.com/announcements/gcr-affirms-uap-old-mutual-insurance-uganda-limiteds-national-scale-financial
-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019Analytical Contacts
Deputy Sector Head:
Primary analyst Godfrey Chingono
Insurance Ratings
Johannesburg, ZA GodfreyC@GCRratings.com +27 11 784 1771
Senior Analyst:
Committee chair Vinay Nagar
Insurance Ratings
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, June 2019
GCR Insurance Sector Risk Scores, July 2019
GCR revises UAP Kenya’s national scale rating to A+(KE); Stable
Outlook, September 2019
Ratings History
UAP Old Mutual Insurance Uganda Limited
Printed on: Dec 22, 2021 / Location:
https://gcrratings.com/announcements/gcr-affirms-uap-old-mutual-insurance-uganda-limiteds-national-scale-financial
-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019Rating Rating Rating
Review Outlook/Watch Date
class scale class
July
Claims Initial National A+(UG) Stable
2007
paying
June
ability Last National A+(UG) Stable
2018
Risk Score Summary
Risk score UAP Old Mutual 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 0.50
Earnings 0.25
Capitalisation 0.00
Liquidity 0.25
Comparative profile 0.50
Printed on: Dec 22, 2021 / Location:
https://gcrratings.com/announcements/gcr-affirms-uap-old-mutual-insurance-uganda-limiteds-national-scale-financial
-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019Group support 0.50
Government support 0.00
Peer analysis 0.00
Total score 8.75
Glossary
An unplanned event, unexpected and un-
Accident designed, which occurs suddenly and at a
definite place.
A process of recording, summarising, and
allocating all items of income and expense
Accounting
of the company and analysing, verifying and
reporting the results.
An insurance sales office which is directed
Agency by an agent, manager, independent agent, or
company manager.
A resource with economic value that a
company owns or controls with the
Assets
expectation that it will provide future
benefit.
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-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019Also known as a Statement of Financial
Position. A statement of a company’s assets
and liabilities provided for the benefit of
Balance Sheet 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.
Financial plan that serves as an estimate
Budget
of future cost, revenues or both.
The largest amount of insurance available
from a company. In a broader sense, it can
Capacity
refer to the largest amount of insurance
available in the marketplace.
The sum of money that is invested to
Capital
generate proceeds.
The provision of capital for a company, or
Capitalisation the conversion of income or assets into
capital.
A measure of the adequacy of an entity’s
Capital Adequacy
capital resources in relation to its risks.
A company owned solely or in large part by
Captive Insurance one or more non- insurance entities for the
Company primary purpose of providing insurance
coverage to the owner or owners.
Funds that can be readily spent or used to
Cash
meet current obligations.
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-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019An event, which causes a loss of
Catastrophe
extraordinary magnitude.
A request for payment of a loss, which may
Claim come under the terms of an insurance
contract.
A certain percentage of premiums produced
Commission that is received or paid out as
compensation by an insurer.
An agreement by which an insurer agrees,
for a consideration, to provide benefits,
Contract reimburse losses or provide services for an
insured. A ‘policy’ is the written
statement of the terms of the contract.
An opinion regarding the creditworthiness
of an entity, a security or financial
instrument, or an issuer of securities or
Credit Rating
financial instruments, using an established
and defined ranking system of rating
categories.
An obligation to repay a sum of money. More
specifically, it is funds passed from a
creditor to a debtor in exchange for
Debt
interest and a commitment to repay the
principal in full on a specified date or
over a specified period.
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-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019Spreading risk by constructing a portfolio
that contains different investments, whose
returns are relatively uncorrelated. The
Diversification
term also refers to companies which move
into markets or products that bear little
relation to ones they already operate in.
The portion of a company’s after-tax
Dividend earnings that is distributed
to shareholders.
Equity is the holding or stake that
shareholders have in a company. Equity
Equity
capital is raised by the issue of new
shares or by retaining profit.
A term used to describe the relationship,
usually expressed as a percent or ratio, of
Experience
premiums to claims for a plan, coverage, or
benefits for a stated time period.
Exposure is the amount of risk the holder
of an asset or security is faced with as a
consequence of holding the security or
Exposure
asset. For an insurer, its exposure may
also relate to the risk related to policies
issued.
Printed on: Dec 22, 2021 / Location:
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-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019Facultative reinsurance means reinsurance
of individual risks by offer and acceptance
Facultative
wherein the reinsurer retains the “faculty”
to accept or reject each risk offered.
Financial The company’s ability to access additional
Flexibility sources of capital funding.
Presentation of financial data including
balance sheets, income statements and
Financial statements of cash flow, or any supporting
Statements statement that is intended to communicate
an entity’s financial position at a point
in time.
A summary of all the expenditure and income
Income Statement
of a company over a set period.
International local currency (International
LC) ratings measure the likelihood of
repayment in the currency of the
jurisdiction in which the issuer is
International
domiciled. Therefore, the rating does not
Scale Rating LC
take into account the possibility that it
will not be able to convert local currency
into foreign currency or make transfers
between sovereign jurisdictions.
Interest Money paid for the use of money.
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-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019The charge or the return on an asset
or debt expressed as a percentage of the
Interest Rate
price or size of the asset or debt. It is
usually expressed on an annual basis.
The income generated by a company’s
Investment Income
portfolio of investments.
A collection of investments held by an
Investment
individual investor or financial
Portfolio
institution.
All financial claims, debts or potential
Liabilities losses incurred by an individual or an
organisation.
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
Liquidity
the ease with which a security can be
bought or sold quickly and in large volumes
without substantially affecting the market
price.
The happening of the event for which
Loss
insurance pays.
Volatility in the value of a security/asset
due to movements in share prices, interest
Market Risk
rates, currencies, commodities or wider
economic factors.
Printed on: Dec 22, 2021 / Location:
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-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019Trading/operating profits after deducting
the expenses detailed in the profit and
Net Profit loss account such as interest,
tax, depreciation, auditors’ fees and
directors’ fees.
The amount of insurance that a ceding
Net Retention company keeps for its own account and does
not reinsure.
The risk of loss resulting from inadequate
or failed internal processes, people or
Operational Risk systems or from external events. This
includes legal risk, but excludes strategic
risk and reputational risk.
Types of insurance, such as auto or home
insurance, for individuals or families
Personal Lines
rather than for businesses or
organisations.
The legal document issued by the company to
Policy the policyholder, which outlines the
conditions and terms of the insurance.
The person in actual possession of an
Policyholder
insurance policy.
An organisation of insurers or reinsurers
through which particular types of risk are
Pool
underwritten and premiums, losses and
expenses are shared in agreed-upon amounts.
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-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019Preference 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
Preference Share 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.
The price of insurance protection for a
Premium specified risk for a specified period of
time.
Rating Horizon The rating outlook period
The resumption of coverage under a policy,
Reinstatement
which has lapsed.
Printed on: Dec 22, 2021 / Location:
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-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019The 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
Reinsurance
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 UAP Old Mutual Uganda
Insurance 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.
UAP Old Mutual Insurance Uganda Limited participated in the
rating process via face-to-face management meetings, and other
written correspondence. Furthermore, the quality of
Printed on: Dec 22, 2021 / Location:
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-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019information received was considered adequate and has been
independently verified where possible. The information
received from UAP Old Mutual Insurance 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.
Printed on: Dec 22, 2021 / Location:
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-strength-rating-at-aug-outlook-stable/ / Date of article: Sep 30, 2019You can also read
