GCR Affirms AIICO Insurance Plc’s Rating of A(NG); Outlook Stable

14 Feb 2017 In Rating Notifications

GCR Affirms AIICO Insurance Plc’s Rating of A(NG); Outlook Stable

Lagos Nigeria, 14 February 2017 - 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 Stable. The rating is valid until November 2017.


SUMMARY RATING RATIONALE

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

AIICO maintained a strong competitive position in the Nigerian insurance industry. In this respect, the insurer’s estimated share of gross written premiums was 28% and 4% in FY15, for the long and short term businesses respectively. Strong competitive positioning is supported by the insurer’s established market presence, moderately diversified branch networks and strong brand recognition.

The insurer’s risk adjusted capitalisation remained strong, largely as a function of reduction in insurance risk. In this respect, capital equated to 130% of net earned premiums at FYE15 (FYE14: 132%). Risk adjusted capital adequacy is likely to remain within a strong range over the rating horizon, given the relative stability in the quantum of insurance and market risk exposures envisaged.

Asset liability matching for the long term business is considered strong, given that the bulk of the portfolio is held in near liquid instruments. Furthermore, the actuarial valuation report at FYE15 stated that AIICO has adequately matched liability exposures with comparable financial assets. Furthermore, the life fund fully covered the actuarial calculation of policyholder liabilities, as highlighted in the actuarial valuation report for FYE15.

Key liquidity measures for the short term business registered an improvement. In this respect, the monthly claims cash coverage ratio was 24 months (FYE14: 6 months), while cash coverage of policyholders’ liabilities equated to 0.6x at FYE15 (FYE14: 0.2x).  Cognisance is further taken of the fact that, the investment portfolio is largely weighted in tradeable debt securities (comprising of treasury bills and government bonds), which provide additional liquidity support.

Earnings capacity is a function of the insurer’s sizeable investment portfolio (FYE15: N68bn; FYE14: N47bn), which generates a large quantum of investment income in absolute terms. In this respect, sound investment returns have translated into moderately healthy returns on revenue (5-year average: 4.3%), offsetting volatile underwriting margins over the bulk of the review period. This trend is expected to continue over the rating horizon.

The reinsurance panel consists of counterparties with an intermediate level of aggregate credit rating strength. The maximum net deductibles per risk and event are limited to a fairly conservative level.

Upward movement in the rating may follow a strengthening in liquidity metrics, coupled with sustainable improvements in underwriting profitability, while capitalisation remains at strong levels. Conversely, a downward review of the rating may arise from a significant decline in earnings capacity impacting on policyholders’/shareholders’ funds. Furthermore, deterioration in liquidity metrics and/or competitive positioning may lead to a negative rating action.


NATIONAL SCALE RATINGS HISTORY

Initial/last rating (March 2016)
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 2016)
Criteria for Rating Long Term Insurance Companies (Updated July 2016)
AIICO rating report (2016)
Glossary of Terms/Ratios (February 2016)


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, 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 above was disclosed to AIICO Insurance Plc. with no contestation of/changes to 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 2015
• Four years of comparative audited numbers
• Unaudited interim results to 30 September 2016
• Budgeted financial statements for 2016
• 2016 reinsurance cover notes
• Actuarial valuation to 31 December 2015
• 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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