Announcements Financial Institutions Rating Alerts

GCR Affirms AIICO Capital Limited Rating of BBB+(NG)(mq); Outlook Stable

Lagos Nigeria, 18 January 2021 – Global Credit Ratings has affirmed the manager quality rating of BBB+(NG)(mq) assigned to AIICO Capital Limited; with the outlook accorded as Stable. The rating are valid until October 2021.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to AIICO Capital Limited (“AIICO Capital” or “the company”) based on the following key criteria:

The accorded management quality rating reflects GCR’s assessment of AIICO Capital’s corporate profile, financial sustainability, portfolio management skill and experience, and sufficiency of risk management, controls and systems.

AIICO Capital is a niche player in the Nigerian investment and asset management space, with a track record of less than a decade. As a subsidiary of AIICO Insurance Plc, the company’s competitive position has been sustained by the strong brand recognition/ acceptance (through group synergies). Cognisance is taken of the wealth of experience of the senior management team in the financial market space, with average professional experience estimated at around 13 years. Staffing level is also deemed satisfactory for the current operational scale.

Funds under management (“FUM”) comprise mutual funds, as well as other discretionary and non-discretionary managed investments. Thus, portfolio construction is governed by the respective investment policy and client specific investment agreement. The company has displayed consistent growth in FUM over the three-year review period, driven by funds managed for the parent. Total FUM stood at N197.7bn at FY19, with a sizeable 70.9% relating to the parent’s fund.

Shareholders’ funds is considered strong at N3.0bn at FY19, supporting the current operational scale and measured well above the required minimum for the sector. Key profitability metrics improved in FY19, supported by increase in revenue lines. Total operating income grew significantly by 63.8% to N1.8bn due to significant improvement in core revenue lines. Despite a significant 48.6% increase in operating expenses to N1.1bn (due to increase in administrative expenses), the cost ratio moderated to 61.9% in FY19 (FY18: 68.2%) given the growth in revenue. Accordingly, pre-tax profit almost doubled to N692.1m in FY19, translating to a firmer return on average equity and assets of 89.9% and 10.3%, compare to 23.8% and 0.9% respectively in FY18.

The risk management structure is considered satisfactory relative to the business model and operational scale.

An upward movement in the rating may result from a significant improvement in asset attraction and retention capacity, as well as sustaining strong financial performance. Conversely, a downward movement in the rating may arise from a continuous decline in market share, loss of key clients, and significant decline in financial performance.

*Note that manager quality ratings are classified as non-credit ratings (refer to published rating scales and definitions).

NATIONAL SCALE RATINGS HISTORY

Initial/last rating (May 2018)

Management Quality rating: BBB+(NG)(mq)

Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst

Adeyinka Olowofela

Senior Credit Analyst

yinka@gcrratings.com

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Funds and Asset Managers, updated March 2017

Glossary of Terms/Ratios (February 2016)

AIICO Capital rating report (2018)

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; and d.) the validity of the rating is for 12 months, or as indicated by the applicable rating document.

The rating was solicited by, or on behalf of, AIICO Capital Limited, and therefore, GCR has been compensated for the provision of the rating.

AIICO Capital Limited participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The rating above was disclosed to AIICO Capital Limited with no contestation of/changes to the rating.

The information received from AIICO Capital Limited and other reliable third parties to accord the rating included the audited annual financial statements of AIICO Capital Limited for the year ended 31 December 2019. In addition, other information specific to the rated entity and/or industry was also received.

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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://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. 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 THIS SITE.

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