Best’s News & Research Service - October 13, 2022 01:48 PM (EDT)
AM Best Revises Outlooks to Negative for Jubilee General Insurance Company Limited
- October 13, 2022 01:48 PM (EDT)
London //BestWire// - AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Jubilee General Insurance Company Limited (Jubilee) (Pakistan).
The Credit Ratings (ratings) reflect Jubilee’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
The outlook revisions to negative reflect pressure on Jubilee’s credit fundamentals from heightened economic, financial system and political risk in Pakistan. In spite of economic growth and support from the International Monetary Fund, Pakistan faces significant headwinds from rising debt servicing costs, a depreciating rupee and elevated global commodity prices. Jubilee has significant exposure to Pakistan, where the company generates all of its business and holds practically all of its investments. The recent floods in Pakistan are expected to have a limited impact on Jubilee’s operating performance, owing to its small exposure to related losses. However, the floods are exacerbating the country’s liquidity and external credit issues, and government resources have been negatively impacted. AM Best notes the company’s historical operational resilience to country risk factors.
Jubilee’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which has improved to the strongest level since 2020, supported by higher levels of capital and surplus. Investment risk remains the most significant driver of required capital. The company’s investment portfolio is concentrated in Pakistan, in line with domestic regulatory requirements. In AM Best’s view, this exposes the company to potential capital volatility, especially in light of increasing economic, political and financial system risk in Pakistan.
Jubilee has a history of robust earnings, with a five-year (2017-2021) weighted average return on equity of 15.2%. Underwriting performance has remained resilient over this period, with a weighted average combined ratio of 93.6%, and a comparatively better performance in 2021 (90.4%). Investment returns remain a core driver of operating earnings, with Jubilee generating a weighted average net investment yield, including capital gains, of 10.3% between 2017 and 2021, representing over 80% of the company’s profit before tax over this period. Whilst flood related claims are expected to be minor, Jubilee’s profitability for 2022 will likely be negatively impacted by significant fire claims incurred in the first quarter of the year.
ERM is viewed to be appropriate given the size and complexity of Jubilee’s operations. However, the company’s risk profile has increased recently as a result of the deteriorating risk environment in Pakistan.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.