GCR Upgrades Law Union and Rock Insurance Plc’s Rating to A-(NG); Outlook Stable

02 Nov 2016 In Rating Notifications

GCR Upgrades Law Union and Rock Insurance Plc’s Rating to A-(NG); Outlook Stable

Lagos Nigeria, 02 November 2016 - Global Credit Ratings has upgraded the national scale claims paying ability rating assigned to Law Union and Rock Insurance Plc to A-(NG) from BBB+(NG), with the outlook accorded as Stable. The rating is valid until September 2017.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Law Union and Rock Insurance Plc (“LUR”) based on the following key criteria:

LUR reflects strong risk adjusted capitalisation, underpinned by a sizeable capital base catering for the quantum of insurance and market risk exposures. In this respect, shareholders’ funds to net premium earned (“NPE”) ratio equated to 166% at FYE15 (peer group average: 126%), while the statutory solvency coverage remained stable at 1.3x. Capitalisation is likely to remain within a strong range over the rating horizon, supported by sound internal capital generation.

The insurer’s liquidity profile is considered strong, with claims cash coverage registering at 34 months (FYE14: 29 months) and cash coverage of technical liabilities equated to 0.9x at FYE15. Global Credit Rating Company Limited (“GCR”) expects liquidity metrics to remain within a strong range, underpinned by sound operating cash-flow generation and conservative asset allocation.

Earnings capacity is largely a function of sound investment income, offsetting volatile underwriting profitability. In this respect, the five year aggregate underwriting margin equated to -9% (FY15: -7%). The operating margin was recorded at 11% in FY15 (FY14: 8%), measuring in line with the three year average. Management expects underwriting profitability to improve going forward, underpinned by enhanced risk diversification into retail business. In GCR’s view, earnings capacity is likely to remain within a sound range, albeit characterised by potential volatility over the medium term.

LUR’s competitive position is viewed to be relatively limited, given continued gross premium reduction. In this respect, the insurer’s share of total industry gross premiums equated to a lower 1.9% in FY15 (FY14: 2.2%). Management expects to strengthen competitive position, underpinned by aggressive growth targets in line with strategic objectives. In GCR’s opinion, growth is likely to remain constrained, given increased competitive dynamics and limited scope for growth in the market.

The reinsurance panel reflects a sound level of aggregated counterparty strength. Furthermore, the maximum net deductibles per risk and event equated to 7% of capital at FYE15 (at current exchange rates).

Upward movement in the rating or outlook may follow attainment of sustainable underwriting profitability, while maintaining liquidity and solvency metrics at strengthened levels. The rating would be sensitive to a sustained deterioration in key credit protection metrics and/or sustained weakness in operating performance.

   
NATIONAL SCALE RATINGS HISTORY

Initial rating (September 2014)
Claims paying ability: BBB+(NG)
Rating outlook: Positive

Last rating (November 2015)
Claims paying ability: BBB+(NG)
Rating outlook: Positive

ANALYTICAL CONTACTS

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
Glossary of Terms/Ratios (February 2015)
LUR reports, 2014-2015

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 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 rating was solicited by, or on behalf of, Law Union and Rock Insurance Plc., and therefore, GCR has been compensated for the provision of the rating.

Law Union and Rock 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 Law Union and Rock Insurance Plc. with no contestation of/changes to the rating.

The information received from Law Union and Rock 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
• Management account to 31 August 2016
• Budgeted financial statements for 2016
• 2016 reinsurance cover notes
• Actuarial valuation to 31 December 2015
• 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.

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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