GCR upgrades Leadway Assurance Company Limited’s rating to AA-(NG); Outlook Stable

31 Aug 2017 In Rating Notifications

GCR upgrades Leadway Assurance Company Limited’s rating to AA-(NG); Outlook Stable

Lagos Nigeria, 31 August 2017 - Global Credit Ratings has upgraded the national scale claims paying ability rating assigned to Leadway Assurance Company Limited to AA-(NG) from A+(NG); with the outlook accorded as Stable. The rating is valid until August 2018.

SUMMARY RATING RATIONALE

Global Credit Rating (“GCR”) has accorded the above credit rating to Leadway Assurance Company Limited (“Leadway”) based on the following key criteria:

Leadway is a well-entrenched top tier player in the Nigerian insurance industry, and has managed to defend its market position despite increasing competitive pressures. In FY16, the insurer held an estimated market share of 15% (based on overall gross written premiums (“GWP”), registering premiums of almost 5x the industry average. While the insurer’s overall growth has been supported by the long term business, note is taken of the volatility in short term earnings over the review period, largely as a result of participation on energy business. Going forward, continued focus on long term business, coupled with expanded retail exposure may gradually enhance business profile

Leadway has evidenced notable earnings volatility throughout the review period, primarily due to loss ratio fluctuations, coupled with exposure to interest rates and exchange rates movements. This persisted into FY16, with an elevated loss ratio and a sizeable fair value loss on debt securities (giving rise to an operating margin of -8%, versus a prior average of +14%). GCR perceives short term earnings risk to be continuous, given ongoing profit exposures. Nonetheless, earnings capacity may strengthen over the rating horizon, should the insurer’s normalised earnings stream benefit from the profit potential of the long term business, which remains a key rating consideration.

Capital increased to N31.5bn at FY16 (FY15: N20.3bn), underpinned by a combination of foreign exchange gains and additional capital injection of N4.3bn in FY16. Accordingly, the insurer’s capital equated to a higher 76% of net earned premium (“NEP”) at FY16 (FY15: 51%; FY14: 53%). Risk adjusted capitalisation is likely to remain exposed to currency fluctuations over the medium term.

The insurer’s investment portfolio continues to be conservatively managed, and is supportive of a high level of asset quality. This further underpins sound liquidity, with cash (inclusive of interest securities) covering policyholder liabilities by 1x at FY16 (FY15: 0.9x). Management intends to maintain this conservative mix going forward.

Asset liability matching for the long term business is considered strong, given that 83% of the investment portfolio is held in near liquid instruments. In this respect, the maturity profile and yields of investment assets closely matched obligations on funding liabilities. Furthermore, the actuarial valuation report at FY16 stated that Leadway has adequately matched liability exposures with corresponding financial assets.

Leadway’s adequate utilization of reinsurance is duly noted, which results in overall retention measuring at a conservative level. The reinsurance panel consists of counterparties with an intermediate level of aggregated credit rating strength, while maximum net deductibles per risk and event are limited to a fairly conservative level.

Positive rating action could develop from an enhanced business profile, following the diversification of the earnings stream, coupled with an improvement in liquidity and solvency metrics. A downward movement may result from a substantial and sustained weakening in capitalisation and/or liquidity metrics. Furthermore, a significant loss of market share would be negatively considered.

NATIONAL SCALE RATINGS HISTORY

Initial rating (July 2001)

Claims paying ability: A(NG)

Rating outlook: Stable

Last Rating (February 2017)

Claims paying ability: A+(NG)

Rating outlook: Positive

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 2017.

Criteria for Rating Long Term Insurance Companies, updated July 2017.

Glossary of Terms/Ratios (February 2017)

Leadway rating reports 2001- 2017

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 http://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, Leadway Assurance Company Limited, and therefore, GCR has been compensated for the provision of the rating.

Leadway Assurance Company Limited 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 Leadway Assurance Company Limited with no contestation of the rating.

The information received from Leadway Assurance Company Limited 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 April 2017
  • Budgeted financial statements for 2017
  • Actuarial report to 31 December 2016
  • The current year reinsurance 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.

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Copyright © 2013 Global Credit Rating Company Limited. THE INFORMATION CONTAINED HEREIN MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED , IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. The ratings were solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR has been compensated for the provision of the ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information. GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.

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