Uganda Re posts growth in underwriting, pre-tax profit dips

BUSINESS 

The Uganda Reinsurance Company (Uganda Re) posted an increase in gross written premium last year compared to 2018, the company's annual report and financial statements for the year ended December 31, 2019 reveal.

The results show that the company grew its gross written premiums to sh50.5b in 2019, from sh33.5b in 2018.

However, its pre-tax profit dipped slightly to sh7.09b during the period from sh8.23b in 2018, owing to a surge in claims and commission and management expenses.

The gross claims for instance increased from sh13.37b in 2018 to sh26.04b while net claims increased from sh11.29b to sh14.57b.

Commission expenses on the other hand increased from sh9.64b to sh11.42b while management and operating expenses grew from sh2.35b to sh3.74b. This ballooned the reinsurer's total expenses from sh23.28b to sh29.74b in 2019.

Despite this, however, the company's net profit increased marginally from sh5.11b in 2018 to sh5.55b while its share capital and net assets increased from sh13.10b to sh13.67b and from sh28.49b to sh34.07b, respectively.

This comes on the back of the Global Credit Ratings (GCR) Company's rating, which in June this year affirmed Uganda Re's national scale financial strength rating of A, with a positive outlook.

This, according to GCR, reflects the anticipated advancement in the capital base over the rating horizon, with slower internal capital generation and base case scenario COVID-19 pandemic stresses unlikely to detract from the trend.

The outlook accounted for conservative views on liquidity and earnings to cater for relatively higher uncertainty in the operating environment.

 The company's business profile is expected to remain limited relative to regional peers.

According to GCR, Uganda Re has maintained steady capital base progression over the period, while safeguarding solid capital adequacy through balancing strategy-driven underwriting risk pressures with significantly lower market risk and contained credit risk exposures.

This, according to GCR, Uganda Re's capital base grew by 22% to $9.4m (sh35.5b) last year and is expected to be sustained above $10m (sh36.7b) over the outlook horizon.

While the reinsurer's capitalisation assessment is expected to improve over the rating horizon, strengthening the overall credit profile, its earnings capacity is expected to persist, though under pressure, reflecting underwriting profit dilution from less profitable growth, according to GCR.

Notwithstanding robust growth and strong market share of domestic industry cessions, supported by 15% legal cessions and strong growth in voluntary business, the rating agency said that Uganda Re's business profile remained limited, relative to regional peers.

This as it was constrained by comparatively low gross premium scale, tentative participation in external markets, which accounts for only 2% of gross premiums, and a concentrated product mix.

Uganda Re's share of domestic cessions increased to 16%, up from 11% in 2018, with robust growth being registered in the medical line.

However, the Uganda Re chief executive officer Ronald Musoke acknowledged that the company‘s main source of business continues to be Uganda but noted that management is enhancing its foreign business relationships for diversification.

He, however, noted that this is being done selectively and on reciprocal basis for the time being as the company continues to review its growth strategy.

Musoke also explained that the reinsurer continues to be prudent with its underwriting and investment options to ensure that the company maintains a positive result and return on shareholder investment.

Although Musoke is optimistic that the creation of new cities will create opportunities for the insurance industry to tap into, he noted that the COVID-19 pandemic, is expected to pose a challenge to the insurance industry globally, thereby interrupting normal business flow and performance.

Commenting about the GCR rating, Musoke said that it would help build confidence among its business partners and prospective ones to give them more business.

He said that currently the reinsurer still faces numerous challenges including reluctance from the industry to give them additional shares of mandatory cessions. He, however, acknowledged that there has been an improvement in this area.

Additionally, Musoke said that while premium collection has improved following the introduction of cash and carry premium collection policy, they still face non-compliance issues.