GCR affirms Law Union and Rock Insurance Plc’s Rating of A-(NG); Outlook Stable

01 Nov 2017 In Rating Notifications

GCR affirms Law Union and Rock Insurance Plc’s Rating of A-(NG); Outlook Stable

Lagos Nigeria, 01 November 2017 - Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to Law Union and Rock Insurance Plc of A-(NG); with the outlook accorded as Stable. The rating is valid until September 2018.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Law Union and Rock Insurance Plc (“LUR”) based on the following key criteria:

LUR’s liquidity profile is considered to be very strong, supported by conservative asset allocation, which is geared towards liquid assets. Accordingly, cash covered average monthly claims and technical liabilities by a robust 56 months (FY15: 34 months) and 1.4x (FY15: 0.9x) respectively. GCR expects liquidity metrics to remain within a very strong range over the rating horizon, supported by sound cashflow generation and conservative asset allocation.

Risk adjusted capitalisation remained very strong, supported by a sizeable capital base catering for the quantum of insurance risks and market exposure. The capital base increased as at 1H FY17, on the back of a private placement of about N591m from a foreign investor. Accordingly, shareholders’ funds equated to a high 250.2% of net earned premiums (“NEP”) at 1H FY17 (FY16: 189.2%, FY15: 165.6%), while statutory solvency coverage remained stable at 1.4x at FY16. Going forward, risk adjusted capitalisation is expected to remain at very strong levels, supported by sound internal capital generation, with limited market risk exposure.

Earnings capacity is largely a function of the insurer’s sizeable investment portfolio generating sound returns, which partially offsets weak and volatile underwriting profitability. In this respect, investment returns averaged 9% over the review period, while the five year aggregated underwriting margin equated to -11% (FY16: -0.8%; FY15: -7.2%). While management has budgeted for a material improvement in earnings capacity (stemming from a turnaround in underwriting profitability), GCR expects earnings capacity to remain within a similar range over the medium term.

Competitive positioning remained relatively limited, given the loss of premium scale over the bulk of the review period, with gross premiums reporting a compounded decline of 1.4% over the five-year review period. Accordingly, LUR’s estimated market share (in terms of overall gross premiums) registered at a stable 1% in FY16. Going forward, the insurer expects to strengthen its competitive profile through aggressive marketing and increased penetration of the retail market. However, given the challenging operating environment and increased competitive dynamics, LUR’s competitive positioning is unlikely to significantly improve over the short to medium term.

The insurer’s business mix is fairly well spread across six lines of business, each contributing more than 10% of gross premiums.

The reinsurance panel consists of counterparties with an intermediate level of aggregate credit rating strength. The maximum net deductibles per risk and event equated to a moderately high 7% of capital at FY16 (at current exchange rates).

Upward movement in the rating or outlook may follow attainment of sustainable underwriting profitability, while maintaining liquidity and solvency metrics at very strong levels. The rating would be sensitive to a sustained deterioration in key credit protection metrics and/or sustained weakness in operating performance.

   
NATIONAL SCALE RATINGS HISTORY

Initial rating (September 2014)
Claims paying ability: BBB+(NG)
Rating outlook: Positive

Last rating (October 2016)
Claims paying ability: A-(NG)
Rating outlook: Stable

ANALYTICAL CONTACTS

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
Nigeria Short Term Insurance Bulletin, 2016
Glossary of Terms/Ratios (February 2016)
LUR reports, 2014- 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 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; 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, Law Union and Rock Insurance Plc., and therefore, GCR has been compensated for the provision of the rating.

Law Union and Rock 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 Law Union and Rock Insurance Plc. with no contestation of/changes to the rating.

The information received from Law Union and Rock 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
• Management accounts to 30 June 2017
• Budgeted financial statements for 2017
• 2017 reinsurance cover notes
• Actuarial valuation to 31 December 2016
• 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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