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

23 Apr 2015 In Rating Notifications

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

Lagos Nigeria, 23 April 2015 - 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 till October 2015.

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:

STI is viewed to hold a relatively strong market position in the Nigerian short term insurance industry, with a robust CAGR of 18% achieved over the past five years amidst a highly competitive environment.

The insurer has displayed an average level of earnings capacity over the review period, albeit closing with a lower aggregate underwriting profit margin of 7% in F13 (F12: 23%). Performance was constrained by a high degree of exposure to the oil & gas portfolio, which led to an increase in reserves and claims experience during the year. STI’s earnings diversification is viewed to be moderate. In this regard, heightened exposure to the energy class implies a high degree of product risk, given the underwriting volatility associated with this line of business.

Shareholders’ funds have evidenced a strong growth rate over the past two years, ending at N3.5bn in F13. An improved shareholders’ fund to net written premium ratio of 88% has been estimated for FYE14.  Furthermore, management has confirmed that the insurer is at an advanced stage of raising N1.1bn additional capital through a Rights Issue to bolster shareholders’ funds.

On a statutory basis, the insurer fell short of the regulatory solvency minimum for FYE12 and FYE13. However, given the part redemption of the convertible bond in 3Q F14, statutory solvency regained compliance, albeit being reported at a thin margin.

Cash coverage of technical provisions remained unchanged at 0.6x in F13 (lagging a technically prudent level), while claims cash coverage registered at an adequate 13 months in F13.

Upward movement on the rating could develop from improved credit protection metrics, accompanied by profitable growth and a well-diversified income base.  A downgrade may arise if the insurer reflects solvency below current levels, a deterioration in the operating performance and/or a weakening in liquidity metrics.


NATIONAL SCALE RATINGS HISTORY

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

Last Rating (February 2014)
Claims paying ability: A-(NG)
Rating outlook: Rating Watch

ANALYTICAL CONTACTS

Primary 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 Insurance Companies (Updated July 2014)
Glossary of Terms/Ratios (February 2014)
Leadway rating reports 2001- 2013


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; and c.) such rating was 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, Sovereign Trust Insurance Plc, and therefore, GCR has been compensated for the provision of the ratings.

Sovereign Trust Insurance Plc participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to Sovereign Trust Insurance Plc with no contestation of/changes to the ratings.

The information received from Sovereign Trust Insurance Plc. and other reliable third parties to accord the credit rating included 2013 audited annual financial statements, current year reinsurance cover notes, full year detailed budgeted financial statements, management accounts to September 2014, Actuarial valuation reports, reserving methodologies and capital management documents. In addition, information specific to the rated entity and/or industry was also received.

 

 

 

 

 

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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

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