The domestic Naira currency claims paying ability rating accorded to Crusader General Insurance Company Limited (“Crusader”) has been downgraded to BBB+ (triple B plus).
Crusader’s brand equity and experience in the Nigerian insurance industry was favourably viewed. However, the insurer has exhibited unsustainably high delivery costs (exacerbated by bad debt provisions), which have negatively impacted on financial flexibility. In this regard, Crusader has thus far failed to realise the anticipated synergies and cost efficiencies from the merger, due to ongoing post merger integration challenges. Accordingly, the insurer has reported consistent (and widening) underwriting deficits over the past three years, with the underwriting deficit amounting to N351m in F09 (F08: N121m deficit). Notably, Crusader reported only three profitable books of business in F09.
In terms of statutory solvency, net surplus assets covered the required minimum level of N3bn by a marginal 1x. Furthermore, international solvency is forecast to decline to 88%, from 198% as at FYE09. This notwithstanding, the insurer maintains a sizeable and relatively conservative investment portfolio, which has facilitated a significant increase in investment income, thereby supporting overall profitability. Furthermore, despite the negative impact of poor premium collection, liquidity has been recorded at comfortable levels.
The well diversified book of business was positively considered, while increased focus on personal lines, as well as business garnered through the insurer’s direct channel (leveraging off the life business’ distribution infrastructure), may further diversify the insurer’s premium base going forward. GCR is of the opinion that the Nigerian Insurance Commission’s market growth initiatives will impact positively on insurance companies and the sector as a whole in the medium term. Furthermore, the reforms in reporting, debtors provisioning and capital are expected to have a positive impact on the financial stability of the sector. This notwithstanding, the low levels of claims reserving in the industry in general, which have culminated in very low loss ratios, are not considered sustainable in the long term.
Marc Chadwick https://globalratings.net/uploads/files/April_2011.pdf
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