GCR affirms AIICO Insurance Plc’s rating of A(NG); Outlook Negative

03 Apr 2018 In Rating Notifications

GCR affirms AIICO Insurance Plc’s rating of A(NG); Outlook Negative

Lagos Nigeria, 03 April 2018 - Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to AIICO Insurance Plc of A(NG), with the outlook accorded as Negative. The rating is valid until November 2018.

SUMMARY RATING RATIONALE

Global Credit Rating (“GCR”) has accorded the above credit rating to AIICO Insurance Plc (“AIICO”) based on the following key criteria:

AIICO’s assets continue to be conservatively managed, with the bulk of investments in risk free Federal Government of Nigeria (“FGN”) bonds and treasury bills. In this regard, cash and equivalent constituted about 83% of the investment portfolio at FY16, translating into a strong coverage of technical provisions (1.2x) and average monthly claims (48 months).  This is supported by sound asset liability matching for the long term business, as confirmed by the actuarial valuation report. Key liquidity measures are likely to register within a sound range over the rating horizon.

Capitalisation has moderated over the review period as sustained losses eroded the capital base. In this respect, consolidated capital declined to N7.6bn at 3QFY17 from N7.9bn at FY16 compared to N11.6bn at FY12. While the solvency levels in the short term business remain strong, the long term business evidences material capital shortfalls, especially considering the scale of the book. However, comfort is derived from the sound asset liability matching, with bulk of the policyholders’ liabilities backed by risk free FGN bonds. Furthermore, statutory solvency on a consolidated basis reflects adequate coverage of assets over liabilities at FY16.

AIICO has evidenced notable earnings volatility throughout the review period, underpinned by a relatively elevated cost structure, coupled with the declining premium base and an increasing claims level. Although FY16 reported a significant increase in operating profitability (underpinned by reserve releases due to the slow down on annuity uptake), this was eroded by the net losses on available for sale assets during the year. Going forward, the inherent variability in overall cost structure might continue to impact on the insurer’s earnings capacity, albeit, net profitability is expected to be supported by sound investment returns.

Notwithstanding the consistent decline in gross premiums for the short term business, AIICO’s competitive position remains moderate. In this regard, consolidated premiums registered a compound annual growth rate of 6.3% for the five-year review period, albeit with a declining market share of 8.1% in FY16 (FY15: 11.3%). Going forward, continued focus on long term business, coupled with expanded retail exposure may gradually enhance the business profile.

AIICO’s reinsurance program consist counterparties with a sound aggregated credit profile. Note is taken of the elevated level (13%) of deductibles per risk and event relative to capital at FY16.

An upward movement of the rating or outlook may follow a sustainable strengthening of solvency metrics and business profile, coupled with the maintenance of liquidity metrics at strong levels. Conversely, downward movement may result from a sustained weakening in capitalisation levels, and a significant loss of market share or sustained poor operating performance.

 
NATIONAL SCALE RATINGS HISTORY

Initial rating (March 2016)
Claims paying ability: A(NG)
Rating outlook: Stable

Last Rating (January 2017)
Claims paying ability: 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 Short Term Insurance Companies, updated July 2017.
Criteria for Rating Long Term Insurance Companies, updated July 2017.
Glossary of Terms/Ratios (February 2017)
AIICO Insurance Plc rating reports 2016-2017

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 FEATURES 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; and 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, AIICO Insurance Plc, and therefore, GCR has been compensated for the provision of the rating.

AIICO Insurance Plc 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 has been disclosed to AIICO Insurance Plc with no contestation of the rating.

The information received from AIICO Insurance Plc and other reliable third parties to accord the credit rating included:

• Audited financial results to 31 December 2016
• Four years of comparative audited numbers
• Unaudited interim results to 30 September 2017
• Budgeted financial statements for 2017
• Actuarial reports to 31 December 2016
• The current year reinsurance cover notes, 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/UNDERSTANDINGRATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGSINFORMATION. 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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