GCR affirms Nigeria Reinsurance Corporation’s rating of BBB+(NG); Outlook Stable.

02 Mar 2017 In Rating Notifications

GCR affirms Nigeria Reinsurance Corporation’s rating of BBB+(NG); Outlook Stable.

Lagos Nigeria, 2 March 2017—Global Credit Ratings has affirmed both the national and international scale claims paying ability ratings to Nigeria Reinsurance Corporation at BBB+(NG) and B respectively, with the outlooks accorded as Stable. The ratings are valid until November 2017.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Nigeria Reinsurance Corporation (“Nigeria Re” or “the reinsurer”) based on the following key criteria:

Nigeria Re displays a sizeable capital base, which totalled a consolidated N18.9bn as at November 2016. As such, risk adjusted capitalisation measured at a very strong level, while the consolidated statutory solvency margin amounted to 1.8x coverage. Capitalisation is expected to remain strong in the short-to-medium term.

Liquidity is considered strong, with cash coverage of average monthly claims and technical liabilities equating to 50 months and 2.1x at 10M F16 and 40 months and 2.1x at FYE15 (FYE14: 60 months and 2.2x) respectively. While the reinsurer has a sizeable investment portfolio amounting to a consolidated N18bn, a substantial 83% is exposed to properties, giving rise to high capital exposure to non-cash assets. Although management intends to dispose a portion of its investment properties in the medium to long-term, its current focus aims to maintain adequate liquidity to support operations. This has been demonstrated over the last two years, where liquidity metrics were registered above historical low levels.

Nigeria Re’s underwriting performance remained low, underpinned by revenue fluctuations and insufficient scale efficiencies to absorb the high variability in claims experience. In this respect, the five-year average underwriting margin equated to negative 7%. Going forward, investment income is expected to support overall net profitability, while underwriting volatility is likely to persist.

The reinsurer’s business profile is considered modest, given the limited gross premium levels in absolute terms. Furthermore, the business mix is heavily reliant on fire premiums, which accounted for a high 45% of revenue at 10M F16 (FY15: 44%).. Going forward, increased market share and enhanced earnings diversification across business lines remain part of management’s medium term objectives.

Counterparties to the retrocession programme comprised intermediately rated reinsurers on an international scale. The maximum net deductible equated to a conservative 0.7% of FYE15 capital.
Given that the majority of the reinsurer’s assets are domiciled in Nigeria, and the bulk of the revenue is derived locally, the international scale rating is constrained by Nigeria’s sovereign rating of “B+”.

Upward movement of the rating is dependent on a demonstrated track record of profitable growth over the medium term. This would need to be supported by risk adjusted capitalisation and liquidity remaining at strong levels. However, the rating may be negatively impacted by a material reduction in capitalisation and/or liquidity. Furthermore, a significant and persistent decline in profitability could result in negative rating movement.

NATIONAL SCALE RATINGS HISTORY                     INTERNATIONAL SCALE RATINGS HISTORY
Initial rating (October 2014)                                           Initial rating (October 2014)
Claims paying ability: BBB+(NG)                                     Claims paying ability: B
Outlook: Evolving                                                           Outlook: Evolving

Last rating (February 2016)                                           Last rating (February 2016)
Claims paying ability: BBB+(NG)                                     Claims paying ability: B
Outlook: Stable                                                             Outlook: Stable


ANALYTICAL CONTACTS

Primary Analyst
Funmilayo Abdulrahman
.(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, updated July 2016
Criteria for Rating Long Term Insurance, updated July 2016
Glossary of Terms/Ratios (February 2016)
Nigeria Re rating reports, 2014-2016


RATING LIMITATIONS AND DISCLAIMERS

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/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 ratings were influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The ratings were solicited by, or on behalf of, Nigeria Reinsurance Corporation, and therefore, GCR has been compensated for the provision of the ratings.

Nigeria Reinsurance Corporation 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 ratings above were disclosed to Nigeria Reinsurance Corporation with no contestation of the ratings.
The information received from Nigeria Reinsurance Corporation and other reliable third parties to accord the credit ratings included:

• Audited financial results to 31 December 2015
• Four years of comparative audited numbers
• Unaudited interim results to 31 November 2016
• Budgeted financial statements for 2016
• The current year retrocession 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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