GCR accords Custodian Life Assurance Limited an initial rating of A-(NG); Outlook Stable

18 Sep 2015 In Rating Notifications

GCR accords Custodian Life Assurance Limited an initial rating of A-(NG); Outlook Stable

Lagos Nigeria, 18 September 2015 - Global Credit Ratings has accorded an initial national scale financial strength rating of A-(NG) to Custodian Life Assurance Limited, with the outlook accorded as Stable. The rating is valid until August 2016.


SUMMARY RATING RATIONALE

Global Credit Rating (“GCR”) has accorded the above credit rating to Custodian Life Assurance Limited (“Custodian Life”) based on the following key criteria:

Custodian Life evidenced robust capital growth over the review period, underpinned by strong internal capital generation. As such, the capital base increased to NGN4.3bn at FYE14 (FYE13: NGN3.2bn), resulting in the ratio of shareholders’ funds/NWP strengthening to 156% (FYE13: 139%).

The insurer has adequate reserves, as highlighted in the actuarial valuation report for FYE14. The life fund fully covered the policyholder liabilities. The relative size of the investment portfolio and the conservative investment stance translated to a strong liquidity position and low risk balance sheet (with cash reserves covering policyholder liabilities by a sound 1.5x at FYE14).

The rating is supported by Custodian Life’s established position in the emerging domestic long term market.  Further, the insurer is a wholly owned subsidiary of Custodian and Allied Plc. (“the Group”), a well-established brand in the Nigerian insurance industry.

Cognisance is taken of the sound operating performance reflected by the insurer, with net surpluses recorded throughout the review period. Earnings capacity has benefitted from the favourable commission recovery rates recorded over the past two years, while increasing cost efficiencies are expected to preserve margin strength over the rating horizon.

An elevated reliance on group life business (63% of gross premiums in FY14) implies some degree of revenue risk, particularly given the exposure towards government-related business. Over the short to medium term, however, a more diversified portfolio mix is anticipated, as penetration into the individual segment improves.

An upward movement in the rating or outlook may follow a strengthening of the insurer’s market share and improved earnings diversification, while maintaining liquidity and solvency at strong levels. Conversely, a sustained deterioration in key operating performance, coupled with a notable decline in credit protection metrics could negatively impact the rating.


NATIONAL SCALE RATINGS HISTORY

Initial/last rating: September 2015
Financial strength: A-(NG)
Rating outlook: Stable


ANALYTICAL CONTACTS

Primary Analyst
Adeyinka Olowofela
Credit Analyst
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Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Long Term Insurance Companies, updated July 2015
Glossary of Terms/Ratios (February 2015)


RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLI WEB SITE AT:  HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE ON THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT www.globalratings.com.ng


SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating 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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The rating was solicited by, or on behalf of, Custodian Life Assurance Limited, and therefore, GCR has been compensated for the provision of the rating.

Custodian Life Assurance Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating above was disclosed to Custodian Life Assurance Limited with no contestation of/changes to the rating.

The information received from Custodian Life Assurance Limited and other reliable third parties to accord the credit rating included:

• The 2014 audited annual financial statements (plus four years audited comparative figures)
• The full year detailed budgeted financial statements to December 2015
• Unaudited financial statements to June 2015
• The reinsurance cover notes for 2015 ,
• The actuarial valuation reports for FYE14, and
• Other related documents.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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