GCR Affirms Law Union and Rock Insurance Plc’s Rating of BBB+(NG); Outlook - Positive

19 Nov 2015 In Rating Notifications

GCR Affirms Law Union and Rock Insurance Plc’s Rating of BBB+(NG); Outlook - Positive

Lagos Nigeria, 19 November 2015 - Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to Law Union and Rock Insurance Plc of BBB+(NG); with the outlook accorded as Positive. The rating is valid until October 2016.

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 introduced a new management team towards the end of 2014, in order to drive the insurer’s medium term strategic objectives. Thus, ability of the new team to sustain key credit metrics at current levels represents a key consideration over the rating horizon.

The insurer reflects strong risk adjusted capitalisation, following the clean-up of the debtors’ book, albeit capital appreciation in absolute terms remained constrained. The ratio of shareholders’ funds to net written premiums (“NWP”) remained strong, albeit contracting (FYE14: 137%; FYE13: 159%), on the back of sound gross premium growth. Furthermore, the statutory solvency ratio remained sound at 1.3x at FYE14 (FYE13: 1.2x).

Liquidity metrics improved over the last two years, supported by sound operating cash flow generation and the liquidation of property investments (of which the proceeds were largely invested in liquid instruments). As such, the two year average claims cash coverage ratio equated to a strong 28 months, compared to the prior two year average of 11 months. Similarly the average cash coverage of net technical liabilities equated to 1x, compared to 0.5x over the prior two years. GCR expects liquidity metrics to remain within a moderately strong range over the rating horizon, underpinned by management’s commitment to maintain the current investment allocations.

Earnings capacity is largely a function of the insurer’s investment portfolio (FYE14: N4.9bn; FYE13: N4.1bn), which generates sound investment income. In this regard, the insurer’s underwriting profitability remained weak, underpinned by a certain degree of volatility in both the claims and operating expenses over the review period. As such, the insurer recorded an underwriting loss margin of 7% in FY14 (FY13: 6% profit margin), although this position has been reversed to profitability as at September FY15.

LUR reflects a moderate competitive position and fairly well diversified earnings. In this regard, the insurer registered an estimated market share of 2% within the Nigerian short term insurance industry, while earnings were fairly well spread across five lines of business (each contributing more than 10% to gross premiums). The competitive position is largely supported by moderately diversified branch networks, and well-established broker relationships. As such, management expects to improve its market position over the medium term.

The reinsurance programme reflects sound counterparties, while maximum net deductibles per risk and event are limited to moderately conservative levels.

The rating may be upgraded following the successful attainment of key strategic objectives, while maintaining risk adjusted capitalisation and liquidity metrics at strengthened levels. Furthermore, the attainment of sustainable underwriting profitability would be positively viewed. Conversely, negative rating action may follow a sustained deterioration in key credit protection metrics, or sustained weakness in the insurer’s operating performance.

NATIONAL SCALE RATINGS HISTORY

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

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 2015
Nigeria Short Term Insurance Bulletin, 2014
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 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 2014
• Four years of comparative audited numbers
• Unaudited interim results to 30 September 2015
• Budgeted financial statements for 2015
• 2015 reinsurance cover notes
• Actuarial valuation to 31 December 2014
• 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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