GCR Affirms Leadway Assurance Company Ltd’s Claims Paying Ability Rating Of A+(NG); Outlook Stable

18 Mar 2016 In Rating Notifications

GCR Affirms Leadway Assurance Company Ltd’s Claims Paying Ability Rating Of A+(NG); Outlook Stable

Lagos Nigeria, 18 March 2016—Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to Leadway Assurance Company Limited of A+(NG), with the outlook accorded as Stable. The rating is valid until November 2016.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Leadway Assurance Company Limited (“Leadway” or “the insurer”) based on the following key criteria:

Leadway reflects strong capitalisation, with a sizeable capital base amounting to USD87m at FYE14. Risk adjusted capitalisation is considered healthy, with the ratio of shareholders’ funds to net premium earned (“NPE”) equating to 135% at FYE14 (FYE13: 148%). Furthermore, the insurer exceeded the statutory solvency margins for life and non-life business, with coverage ratios of 1.5x and 4.2x respectively at FYE14 (FYE13: 1.1x and 3.4x). However, the high quantum of asset risk represents the primary source of capital exposure for the insurer, while internal capital generation volatility may continue to cause solvency margin fluctuations going forward.

The insurer maintains a strong competitive position in the Nigerian insurance industry, with market shares (in terms of gross written premiums; “GWP”) reflected at an estimated 29% and 8% at FYE14, for life and non-life businesses respectively. This is supported by the insurer’s established market presence and strong brand recognition.

Leadway’s total GWP amounted to a sizeable USD236m in FY14 (FY13: USD262m), reflective of the large financial scale of the insurer’s premium base. Furthermore, the material rise in the value of long term insurance premiums, coupled with the reduction in exposure to the special risk class (which has evidenced exposure to high severity losses), has served to improve the profile of the insurer’s earnings exposure. The continued focus on long term business, coupled with a likelihood of subdued activity in the special risks class, should see this pattern persist going forward.

Profitability is considered volatile across both short term and long term operations, underpinned by pronounced loss ratio fluctuations, coupled with exposure to asset value instability. Going forward, reductions in participation on special risk business may see a concomitant lowering in the net incurred loss ratio, as the impact of high severity losses reduces. However, continued exposure to asset value volatility is likely to persist over the rating horizon, given the insurer’s balance sheet appetite for financial market risk.

Liquidity is considered low, with claims cash coverage for non-life business amounting to 17 months in FY14, while cash coverage of non-life technical liabilities was reflected at 0.4x. However, the insurer has a sizeable investment portfolio, constituting 60% and 98% of the asset base for non-life and life businesses respectively at FY14. Tradeable instruments within this offer the insurer some liquidity relief. In particular, non-life technical provision coverage rose to 0.6x inclusive of the large portion of government bonds.

The ratio of net claims reserves to NPE amounted to 150% in FY14 (FY13: 128%), with GCR considering the insurer’s rising provisioning metrics to be more aligned with the large provisioning requirements of the high severity risks classes underwritten. An external actuarial valuation of the life fund at FYE14 confirmed the adequacy of the fund against the policyholder liabilities. The reinsurance treaties reflect participation by counterparties with strong international scale credit ratings, while maximum net deductibles are limited to levels considered to be moderately conservative.

An upward movement in the rating may result from the insurer’s ability to strengthen the quantum and consistency of earnings over a sustained period, while strengthening liquidity metrics materially, and maintaining a very strong level of risk adjusted capitalisation. A downward review of the rating may arise from a sustained weakening in earning capacity and/or capitalisation metrics. A further deterioration in liquidity metrics, or a material loss in market share in core insurance portfolios, to may also lead negative rating action


NATIONAL SCALE RATINGS HISTORY
Initial rating (July 2001)
Claims paying ability: A(NG)
Outlook: Stable

Last rating (December 2014)
Claims paying ability: A+(NG)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Funmilayo Ojatunwase
.(JavaScript must be enabled to view this email address)
+234 1 462 2545


Committee Chairperson
Dave King
.(JavaScript must be enabled to view this email address)


APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated July 2015
Criteria for Rating Long Term Insurance Companies, updated July 2015
Glossary of Terms/Ratios (February 2015)
Leadway rating reports 2001-14


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, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-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 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, Leadway Assurance Company Limited, and therefore, GCR has been compensated for the provision of the ratings.

Leadway Assurance Company 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 has been disclosed to Leadway Assurance Company Limited with no contestation of the rating.

The information received from Leadway Assurance Company Limited 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 August 2015
• Budgeted financial statements for 2015
• 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/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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