GCR Affirms Standard Alliance Insurance Plc’s Rating of BBB(NG); Outlook Stable

18 Aug 2016 In Rating Notifications

GCR Affirms Standard Alliance Insurance Plc’s Rating of BBB(NG); Outlook Stable

Lagos Nigeria, 18 August 2016 - Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to Standard Alliance Insurance Plc of BBB(NG), with the outlook accorded as Stable. The rating is valid until July 2017.


SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Standard Alliance Insurance Plc (“SAI”) based on the following key criteria:

Shareholders’ funds rose by 28% to N4.2bn at FYE15, on the back of internal capital generation. In conjunction with a substantial reduction in retained premium volumes, this led to an improvement in risk adjusted capitalisation, with the ratio of shareholders’ funds to net earned premium (“NEP”) improving to 172% at FYE15 (FYE14: 86%). In turn, statutory solvency regained compliance at FYE15, with admissible asset coverage of liabilities equating to 1.5x. Going forward, risk adjusted capital adequacy is expected to remain at an adequate level.

SAI’s liquidity is low, and a rating weakness. Cash coverage of technical provisions was reported at a low 0.3x at FYE15, and claims cash coverage registered at 11 months at FYE15. Notably, excluding borrowings (FYE15: N796m), the insurer is in a net negative cash position. Management expects to ease liquidity pressure over the medium term with the sale of recovered assets (currently held for sale). Assuming the assets were to be sold at existing values, cash coverage of net technical liabilities would equate to 0.9x, while monthly cash coverage would improve to 29 months. Note is taken, however, of the execution risk associated with the asset sales.

The insurer’s market position has been adversely impacted by the loss in premium scale in FY15, resulting in a reduced market share of 1.5%. The reduction in premium volumes followed sizeable discontinued portfolios in key lines. Going forward, limited scope for market growth, coupled with the reduction in the insurer’s competitive strength, is expected to constrain volume uptake.

The insurer’s earnings capacity is viewed to be weak, having been adversely impacted by high total operating expenses. The underwriting margin averaged a weak -11% over the past three years, and equated to -7% in FY15. Though cost cutting measures have been put in place, this is only expected to reflect in performance over the medium term.

The reinsurance panel consists of counterparties with an intermediate level of aggregate credit rating strength. The maximum net deductibles per risk and event on non-energy risks are limited to conservative levels, while the energy deductible is viewed to be intermediate relative to capital (5%). Given that some deductibles are denominated in USD, the insurer is exposed to elevated foreign currency risk, particularly in view of on-going depreciation of the Naira and the absence of foreign currency cash holdings.

An upward movement in the rating or outlook may follow a rise in market share, accompanied by a sustained improvement in profitability and liquidity metrics. Negative rating action may follow weakening of solvency and liquidity metrics as well as sustained weakness in the insurer’s operating performance.


NATIONAL SCALE RATINGS HISTORY

Initial/last rating: October 2015
Claims paying ability: BBB(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 Short Term Insurance Companies, updated July 2016
Nigeria Short Term Insurance Bulletin, 2015
Standard Alliance Insurance Plc report, 2015
Glossary of Terms/Ratios (February 2016)


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.

Standard Alliance 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 rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.

The credit rating above was disclosed to Standard Alliance Insurance Plc. with no contestation of/changes to the rating.

The information received from Standard Alliance Insurance Plc. and other reliable third parties to accord the credit rating included

• Audited financial results to 31 December 2015
• Four years of comparative audited numbers
• Unaudited account as at 31 March 2016
• Budgeted financial statements for 2016
• The current year reinsurance cover notes
• Actuarial valuation to 31 Dec 2015
• Industry comparative data, 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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