Goldstar Insurance Company Upgraded To AAA(UG) On Improved Management & Governance

Goldstar Insurance Company Limited’s national scale financial strength rating has been upgraded by Global Credit Rating Agency from A+ to AA (UG) due to better management and governance.

In order to comply with regulatory standards, the board membership was changed, which is reflected in the rating upgrade. Additionally, the insurer’s ability to maintain its mid-range competitive position led to a marginally better assessment of its business profile.

Goldstar has a solid financial profile in Uganda, which is known to be characterized by very good risk-adjusted capitalization and liquidity. The earnings capacity assessment also takes into account sustained underwriting profitability and ongoing sound net earnings.

Strong capitalization from operations and a low-risk retention operating plan contribute to the insurance company’s substantial capitalization. A prudent investment strategy and relatively low credit risks are advantageous to the insurer. With the GCR capital adequacy ratio reaching a high of 4.8x in December 2022 (December 2021: 4.5x), Goldstar has therefore incorporated a level of capital redundancy into the capital base.

The insurer’s strong earnings are supported by low deductibles on a quality gross book, which results in high net commission recoveries and a very competitive loss ratio, the company claims. “We expect capitalization to be maintained at the current level, supported by strong earnings and limited dividend extraction,” the company adds. In this way, the percentage of net incurred losses decreased from 55% in 2021 to 29% in 2022. This was the outcome of the accident book being cleaned up, among other claim management activities. In contrast to negative 45% in 2021, the commission ratio was negative 29% in 2022. The three-year cumulative ratio therefore equaled 70% (2022: 69%). Net margins were sustained by investment income over the course of the assessment period, with a three-year average return on revenue of 36%. Even though we take note of the profits volatility, we consider the insurer’s established history of profitable underwriting to be a sign of future earnings capability.

Due to Goldstar’s conservative asset allocation and low insurance risk retention, liquidity is evaluated within a fairly robust range. In this regard, the insurer’s liquidity coverage was 2.5x in December 2022 (compared to 2.6x in December 2021). We anticipate that over the rating horizon, liquidity measures will continue to fall within a very good range, supported by excellent operating cash flow production and persistently conservative asset allocation.

The insurer’s focus on specialized markets and avoidance of certain risks are reflected in Goldstar’s competitive position, which measures in the middle of the spectrum. Long-standing connections with brokers and clients provide access to a variety of market mandates within the dominant corporate segment, supporting the insurer’s market position. According to the firm, “in conjunction with limited gross premium scale, premium diversification is expected to remain at very low levels, with the acceptance of small to medium-sized risks in the medium to long term expected to increase the level of policyholder diversification.”

“The changes made to the insurer’s board composition, which now has a majority of independent members and complies with regulatory requirements, changed our perspective on management and governance. Within the following six to twelve months, Goldstar is anticipated to complete the remaining requirements.

The financial profile will be maintained within the present range, according to our assessment, showing sufficient headroom within the GCR CAR and liquidity ratio metrics, which are anticipated to measure above 3x and 2x, respectively, over the medium term. The business profile is anticipated to stay within the same range, even though management and governance may improve with compliance with board committees’ regulatory obligations,” the company notes.

According to the business, the data used to assign the credit rating that was obtained from the entity and other trustworthy third parties included:

financial results that have been audited as of December 31, 2022;
Full-year budgeted financial statements for 2023, four years of comparative audited financial accounts to December 31;
Notes on reinsurance coverage for 2023; and Additional pertinent papers