GCR Affirms Sovereign Trust Insurance Plc’s Rating of A-(NG); outlook Stable

29 Jan 2016 In Rating Notifications

GCR Affirms Sovereign Trust Insurance Plc’s Rating of A-(NG); outlook Stable

Lagos Nigeria, 29 January 2016 - Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to Sovereign Trust Insurance Plc of A-(NG); with the outlook accorded as Stable. The rating is valid until October 2016.


SUMMARY RATING RATIONALE

Global Credit Rating (“GCR”) has accorded the above credit rating to Sovereign Trust Insurance Plc (“STI”) based on the following key criteria:

The rating reflects Sovereign Trust Insurance Plc’s (“STI”) moderately strong market position in the domestic insurance market, underpinned by good brand recognition, an experienced management team and a well-established broker network. Accordingly, the insurer has registered a sound 4-year compound annual GWP growth rate (“CAGR”) of 11% over the review period.

The insurer’s capitalisation strengthened for the YTD FY15, underpinned by N695m raised through a rights Issue during the year.  Accordingly, shareholders’ funds to net earned premium (“NEP”) improved to 118% at 3Q FY15 (FYE14: 90%). Furthermore, STI met the statutory solvency requirement at FYE14, on the back of part redemption of the Daewoo bond during the year.

The insurer’s liquidity profile is considered sound, supported by a balanced investment approach. Claims cash coverage was reported at 12 months (FYE13: 20 months), while cash cover of net technical liabilities stood at a strong 2.1x.  Asset risk is considered moderate, with high risk financial assets representing 53% of FYE14 capital.

Earnings capacity is viewed to be moderately strong. While note is taken of the volatility in underwriting margins displayed over the review period, a moderately strong cumulative 5-year aggregate margin of 8% was registered.

STI’s business mix is fairly well spread across four lines of business, each contributing more than 10% of gross premiums. Cognisance is taken, however, of the high weighting of the energy business to the portfolio mix. This is expected to be scaled down, given management’s plan to increase the contribution of other lines of business.

Upward movement on the rating or outlook could develop on the back of increased market entrenchment, enhanced earnings capacity and maintenance of strong risk-adjusted capital adequacy and liquidity metrics.  Conversely, the rating may come under pressure following an unfavourable earnings trend and/ or a deterioration in capitalisation or liquidity metrics beyond expected levels.

NATIONAL SCALE RATINGS HISTORY

Initial rating (November 2007)
Claims paying ability: A-(NG)
Rating outlook: Stable

Last Rating (January 2015)
Claims paying ability: A-(NG)
Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Adeyinka Olowofela
Credit Analyst
.(JavaScript must be enabled to view this email address)

Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Insurance Companies (Updated July 2015)
Glossary of Terms/Ratios (February 2015)
STI rating reports, 2007- 2014

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, Sovereign Trust Insurance Plc., and therefore, GCR has been compensated for the provision of the rating.

Sovereign Trust 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 Sovereign Trust Insurance Plc. with no contestation of/changes to the rating.

The information received from Sovereign Trust 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 year to date 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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