GCR Affirms WAICA Reinsurance’s International Claims Paying Ability Rating Of B+; Outlook Stable.

03 Apr 2018 In Rating Notifications

GCR Affirms WAICA Reinsurance’s International Claims Paying Ability Rating Of B+; Outlook Stable.

Lagos Nigeria, 3 April 2018—Global Credit Ratings has affirmed the international scale claims paying ability ratings assigned to WAICA Reinsurance Corporation Plc of B+; with the outlooks accorded as Stable. Furthermore, Global Credit Rating has upgraded the national scale claims paying ability rating assigned to WAICA Reinsurance Corporation Plc to A+(NG) from A(NG), with outlook accorded as Stable. The national scale rating exclusively measures the capacity of the reinsurer to meet Naira-based obligations in Nigeria. The ratings are valid until November 2018.

SUMMARY RATING RATIONALE

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

The rating takes into consideration the material increase in WAICA Re’s capitalisation to USD82.8m at 3QFY17 (FY16: USD62.9m; FY15: USD38.4m), supported by sizeable capital injections (totalling USD33m in FY16 and FY17) through right issues and private placements. Combined with sound internal capital generation, the capital base adequately catered for increasing underwriting and credit risk. As a result, risk adjusted capitalisation measured by shareholders’ funds to net written premium stood strong at 155% and 138% at 3Q FY17 and FY16 respectively. Going forward, capitalisation is expected to remain at similar levels over the rating horizon.

Also, the reinsurer’s improved market position in terms of coverage and footprint across sub-Sahara Africa is favourably considered. While the reinsurer commenced operations with initial focus on the Anglophone West-Africa region, management has embarked on significant market expansion over the last three years, generating about 48% of its premium income in FY16 (FY15: 36%) from the rest of Africa and part of Middle East and Asian markets. The reinsurer commenced operations from Tunisia in FY17 and plans to operationalise a subsidiary in Kenya in FY18. In this respect, an improvement in competitive positioning could be registered over the medium term, albeit with positive rating response likely to factor in premium collectability.

The reinsurer displayed a very strong liquidity profile over the review period, supported by sound operational cash inflows, conservative asset allocation and more recently capital injections. As such, cash coverage of technical liabilities and average monthly claims coverage registered at 2.3x and 64 months at 3QFY17 respectively (FY16: 2.0x and 51 months, FY15: 1.9x and 44 months respectively). While WAICA Re began to diversify investments in FY15, total exposure as at 3Q FY17 measured to high risk assets at 16% of the investment book. Key liquidity metrics are expected to register within a strong range over the outlook horizon, albeit with a potential to ease over the medium term, underpinned by continuous diversification of investments.

Earnings capacity metrics are strong, supported by healthy underwriting profitability and sound investment income. The average underwriting margin for the last three years registered at 19% in FY16, supported by a relatively stable and highly competitive net incurred loss ratio, and enhanced economies of scale. Underwriting profitability metrics may remain within a robust range over the rating horizon, albeit GCR opinion of earnings capacity may be impacted by premium collection developments and exchange rate fluctuations.

The earnings profile is intermediate, reflecting a healthy product risk profile partially offsetting the heavy reliance on two classes of business. Fire & engineering, and accident classes (evidencing some level of granularity) accounted for a combined 79% and 80% of GWP at 3Q FY17 and FY16 respectively. Though the reinsurer has commenced the process of diversifying its revenue base, the earnings profile is likely to remain at similar levels over the short to medium term.

Counterparties to the retrocession arrangements comprised rated institutions with sound credit profiles. The reinsurer’s largest retention per risk/ per event for FY17 stood at USD1m, amounting to less than 1% of shareholders’ funds.

Diversification of the asset pool is favourably considered, albeit weak ratings of the countries where most of the assets are based remains a constraining factor to the international rating.

The rating may be adjusted upward following an improvement in the business profile over the medium term. This would need to be supported by key credit protection metrics remaining within very strong ranges. However, a significant or protracted reduction in liquidity and/or material reduction in risk adjusted capital adequacy may result in negative rating action.

 
NATIONAL SCALE RATINGS HISTORY                                             INTERNATIONAL SCALE RATINGS HISTORY
Initial rating (November 2015)                                                               Initial rating (November 2015)
Claims paying ability: A-(NG)                                                                   Claims paying ability: B+
Outlook: Positive                                                                                   Outlook: Stable

Last rating (January 2017)                                                                     Last rating (January 2017)
Claims paying ability: A(NG)                                                                     Claims paying ability: B+
Outlook: Stable                                                                                       Outlook: Stable

ANALYTICAL CONTACT

Primary Analyst
Funmilayo Abdulrahman
.(JavaScript must be enabled to view this email address)
+234 1 904 9462-3


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 2017)
Glossary of Terms/Ratios (February 2016)
WAICA Re’s rating report (2015-17)


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

WAICA Reinsurance Corporation 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 ratings have been disclosed to WAICA Reinsurance Corporation Plc with no contestation of the ratings.

The information received from WAICA Reinsurance Corporation Plc and other reliable third parties to accord the credit ratings included:

• Audited financial results to 31 December 2016
• Four years of comparative audited numbers
• Unaudited interim results to 30 September 2017
• Budgeted financial statements for 2017
• 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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