GCR downgrades Niger Insurance Plc’s Financial Strength rating of B+(NG); Rating Watch.

09 Oct 2017 In Rating Notifications

GCR downgrades Niger Insurance Plc’s Financial Strength rating of B+(NG); Rating Watch.

Lagos Nigeria, 9 October 2017—Global Credit Ratings has downgraded the financial strength rating of Niger Insurance Plc to B+(NG), with the rating placed on Rating Watch. The rating is valid until March 2018.


SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Niger Insurance Plc (“Niger” or “the insurer”) based on the following key criteria:

Niger reflects an extremely vulnerable liquidity profile, which may deteriorate further over the rating horizon, in the absence of additional capital injections and/or sustainable turnaround in cash flow generation. As such, cash coverage of average monthly claims and technical liabilities of the short term business was reported at less than 4 months and 0.1x by 1H FY17 (FY16: 4 months and 0.1x; peer average: 28 months and 0.7x) respectively. Also, cash coverage of policyholder’s liabilities for the long term business has remained less than 0.1x since FY15. While management intends to improve liquidity through stronger cash flows from operations and the disposal of investment properties (classified as held for sale) in FY17, the success of underlying transactions is uncertain, given the current constraint in business and operating environment.

The rating also takes into consideration the escalation in borrowings to N401m at FY16 (FY15: N278m), which is classified as a current liability and potentially payable in FY17, placing further pressure on liquidity. Despite a partial repayment of N54.9m in 1H FY17, netting the outstanding borrowings from available cash and equivalents would leave the insurer in a negative liquidity position (net liquidity position will decline from N566.8m at FY15 to negative N24.7m as at 1H FY17). This is considered a liquidity risk and key driver for a rating downgrade.

Capitalisation is considered to be moderate, with high solvency metrics offset by high exposure to investment properties. Shareholder’s funds to net premiums stood at well above 200% for the short term business, a function of decline in business volumes. Similarly, shareholders’ funds to policyholders’ liabilities of the long term business stood at 0.5x and 0.6x at FY16 and 1H FY17 respectively. Going forward, capitalisation could remain within a moderate range over the rating horizon. Note is taken of the possible improvement in asset quality, which is likely to follow the disposal of investment property, albeit with GCR expecting this to materialise over the medium to long term given the time it usually takes to dispose this type of asset.

Niger’s competitive position among the mid-sized players in the industry weakened at FY16, due to concentration of its earnings and the resultant volatility therefrom. However, management intends to reclaim its lost market share in FY17 and performance as at 1H FY17 reflects the long term business premiums well ahead of the overall figure of FY16, while that of short term business lags behind FY16 position on annualised basis.

Liquidity remaining extremely vulnerable is likely to result in negative rating action. Furthermore, the rating may be downgraded should earnings and/or competitive positioning decline further. Conversely, upward review in the rating and/or outlook could result from a sustainable improvement in asset quality, liquidity, competitive positioning and earnings capacity.


NATIONAL SCALE RATINGS HISTORY
Initial/last rating (June 2017)
Financial Strength: BB+(NG)
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 Long Term Insurance Companies, updated July 2017
Glossary of Terms/Ratios (February 2017)
Niger rating report (June 2017)


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; and 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, Niger Insurance Plc, and therefore, GCR has been compensated for the provision of the rating.

Niger 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 has been disclosed to Niger Insurance Plc with no contestation of the rating.

The information received from Niger Insurance Plc and other reliable third parties to accord the credit rating included:

• Audited financial results to 31 December 2016
• Four years of comparative audited numbers
• Unaudited interim results to 30 June 2017
• 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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